Answered by Andrew Jenkinson
A pension arrangement is split into two parts. You can take a lump sum of up to 25% tax-free, while anything above this is subject to Income Tax at your marginal rate.
If you want to draw a regular income from your pension in a tax efficient manner, then the first 25% of each withdrawal you make will be tax-free, and the remainder will be taxed at your marginal Income Tax rate.
Your pension provider will provide you with payslips and contact HMRC for a tax code. You may initially over pay Income Tax until the pension provider receives your correct tax code.
Alternatively, you could buy an annuity. You can still take the first 25% of your pension tax-free, but then the remainder is used to buy yourself an income for life from an insurance company. This annuity income will also be added to the rest of your income and taxed at your highest marginal rate.
Frequently Asked Pensions Advice Questions
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