Can I Take Money Out of My Personal Pension?
Question asked by Kay Rivers
I know that you have to pay income tax on your pension income, but will I also have to pay National Insurance contributions as well?
No, there are no National Insurance contributions to pay on any money you receive from your pension, including on annuity payments.
You also don’t have to pay National Insurance contributions on any lump sum you might choose to take from your pension (and the first 25% is free of income tax, as well).
You only have to pay National Insurance contributions on the income you earn from your job, whether you’re employed or self-employed.
If you’re employed, you pay Class 1 National Insurance contributions as a percentage of your earnings. If you’re self-employed, you pay Class 2 contributions at a flat weekly rate, and Class 4 contributions as a percentage of your earnings.
You only stop paying National Insurance contributions when you reach state pension age. If you choose to continue working after your state pension age, then your employer is still liable for National Insurance contributions on your earnings even though you no longer have to pay employee contributions.
However, you’re right that you may be liable to income tax on payments from your pension scheme depending on how much retirement income you have.
HMRC will add together all income you receive, such as from annuities, income drawdown, the state pension and final salary / defined benefit schemes. If it’s above the personal allowance (£12,570), then you’ll be charged income tax on the amount you earn above your personal allowance, just as happens while you’re in work.