Taking money from your pension doesn't necessarily mean the amount you request is the amount that arrives in your bank account.
Some of your pension can usually be taken tax-free, but other withdrawals are treated as taxable income.
You can normally take up to 25% of your pension tax-free, subject to your available tax-free allowances.
For most people, the standard lump sum allowance is £268,275, although individual circumstances and protections can affect this.
GOV.UK - Tax-free pension withdrawals
Exactly how you receive your tax-free money depends on the type of withdrawal you make.
For example, with an UFPLS withdrawal, normally 25% of each payment is tax-free and 75% is taxable.
With flexi-access drawdown, you can normally take up to 25% of the amount moved into drawdown as tax-free cash, with subsequent withdrawals from the drawdown fund being taxable.
The taxable part of your withdrawal is added to your other taxable income for that tax year.
That could include:
salary or earnings;
State Pension;
other pension income;
taxable benefits; and
certain other income.
This means the amount of tax you pay depends on your individual circumstances.
Taking a large withdrawal in one tax year could also push some of your income into a higher Income Tax band.
If part of a £20,000 withdrawal is taxable, Income Tax may be deducted before the money reaches your bank account.
How much is deducted will depend on the type of withdrawal, your tax code and your other taxable income.
Pension providers normally deduct applicable tax through PAYE.
When the appropriate tax code isn't available, an emergency tax code may be used. This can sometimes result in more tax being deducted initially than you ultimately owe.
If too much tax has been deducted, it may be possible to reclaim it from HMRC.
Potentially.
Because taxable pension withdrawals form part of your income for the tax year, the amount and timing of withdrawals can affect the tax payable.
For example, taking one large taxable lump sum could have a different tax result from taking smaller withdrawals over a longer period.
That doesn't mean one approach is right for everyone. It depends on how much money you need, when you need it and your other income.
A withdrawal calculator can give you an illustration before you start the actual withdrawal process.
Enter the amount you're considering and it can show you an estimate of the tax implications.
You can then try a different amount and compare the results.
Pension App withdrawal calculator coming soon.
When you proceed with an actual withdrawal, we'll provide an illustration based on the withdrawal you're requesting.
Tax depends on your individual circumstances. Calculator results are illustrations and the actual amount of tax deducted may differ.