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How much is the tax on pension drawdown?

When you move money out of your pension savings, you can usually have the first 25% tax-free. Any withdrawals you make from the remaining 75% will be taxable.

This means payments from the 75% will count towards the amount you may have to pay Income Tax on, along with any money you earn and other pension payments you receive, such as the State Pension. If you simply move the 75% of your pension pot into a drawdown account, it will not be taxed – it only becomes taxable when you withdraw it. You should remember that a large drawdown withdrawal could move you into a higher tax bracket.

You can find more information about drawdown here.

The amount of tax you may have to pay will be an important consideration when you are weighing up your options for turning your pension pot into a retirement income. This is one of the reasons you may want to take advice when you move money out of your pension savings. With a Fidelity SIPP, advice is available through Fidelity’s retirement service. Call 0800 368 6882 for a free initial chat, to find out how the service works and what the charges will be.

Another place to go for help is Pension Wise, the government’s free, impartial guidance service, designed to help you understand the various ways you can turn your pension pot into an income. You can call 0300 330 000 and book a guidance appointment, either on the phone or face to face. Alternatively, go to pensionwise.gov.uk to explore your options.