The most common types of income for a pensioner are:

• State retirement pension (SRP). This pension is taxable.
• An occupational pension paid by a previous employer or pension company. These pensions are almost always taxable.
• Income from bank or building society deposits. These are usually taxable.
• Pension credit. This is not taxable.

Although we have taken the most common types of income, we have used words like "almost always" or "usually" to explain the tax position. This is because the tax system has exceptions giving the pensioner some extra help and we want you to be aware of them.

We have listed the most common types of tax-free income here.

Everything else is likely to be taxable. Click here to see a list of taxable income sources.

The topics covered in this section are:

State retirement pension

How am I taxed on my occupational pensions and retirement annuities?

Which state benefits can I claim and how are they taxed?

Income from savings - how am I taxed?

Bank & building society interest

National Savings or other untaxed interest

Company dividends

State Retirement Pension (SRP)

• To get more information about how your state retirement pension works in the first year you receive it please have a look at the section on Retiring shortly
• If you are thinking of deferring your state pension, you can find more information on this here

• If you have deferred state pension and opt to take a lump sum you need to know how it will be taxed - you can find some information and examples here.

• If you have capital gains in the year you take the lump sum you need to know how these will each be taxed. Have a look at Lump sum state pension & Capital gains for more information on this.

• Always keep any paperwork you are sent which tells you what your SRP will be for any tax year, as you will find this useful if you need to complete a tax return or repayment claim.

• Your SRP is taxable, but it is also paid with no tax taken off before you get it. If your income including your SRP is less than your tax allowances (these are explained in Tax allowances)you will probably not need to pay any tax at all.

• If your income including your SRP and any other pensions is more than your tax allowances you may need to pay some tax.

• If you also receive a company pension (often called an occupational pension), the tax due on your SRP will be collected from your other pension when it is paid to you. This may make the tax seem high on your occupational pension but this is because the Revenue collect tax on two pensions from the one payment.

• Please check the figure of SRP shown on your coding notice. The Revenue does not always know the exact amount you are due to receive in the tax year.

• To help avoid any problems - make sure you tell the Revenue in writing whenever you receive a new pension.
• If you are thinking of retiring abroad you should click here for information on how your state pension will be taxed and click here for information about increases in state pension when you are living abroad.

Back to the top

How am I taxed on my occupational pensions and retirement annuities?

• You may get an occupational pension because you were in your employer's pension scheme, or maybe you paid amounts yourself to a personal pension plan. If you had a pension plan that you set up before July 1988, this will be called a retirement annuity policy and you will be receiving a retirement annuity.
• Click here to find out what happens in the first year you get SRP and an occupational pension or retirement annuity
• Your occupational pensions, personal pensions and retirement annuities are taxed before you get them.
• With occupational pensions and personal pensions, the Revenue tell your pension payer how much of your tax allowances they are able to take off the pension before it is taxed. They send you a coding notice (form P2). However this system is not foolproof and it is worth reading our article which comments on the fact that at least 600,000 pensioners have for years had the wrong amount of tax taken off their pensions.
• You will only pay tax on the balance of your pension after tax allowances are taken off. If you were employed before retirement, you will see that it is the same system which was applied to your wages or salary under Pay As You Earn (PAYE).
• If you are receiving SRP the Revenue will collect the tax due on this at the same time as the tax due on the occupational or personal pension. Here is an example of how they do it.

• After the end of the tax year you will get a form P60 or annual statement showing your total pension and tax deducted. You should keep this form safe in case you need it to fill in a tax return or repayment claim.

• All retirement annuities are taxed under PAYE - just like a personal or works pension.

• If you do not pay tax you should have a look here for more information as to how the changes affect you.

• If you are thinking of retiring abroad you should click here.

Back to the top

Which state benefits can I claim and how are they taxed?

• Most, but not all, state benefits for pensioners are tax-free. Benefits are usually paid because you have a low income or for health reasons. Click here if you would like details of the benefits most likely to be claimed by pensioners and whether they are taxable

• It is worth checking that you are not including any of these tax-free items in figures that you supply to the Revenue. Sometimes on pension statements both taxable and tax-free items are shown.

• The most recently introduced state benefit is the Pension Credit and you will also find more information about the credit here

Back to the top

Income from savings - how am I taxed?

• Normally we say that earned income is a pension, income from your job or from self-employment. The rates of tax that normally apply to earned income are 20% and 40%.
• Income from savings is taxed differently from earned income. Income from savings includes interest from banks, building societies, interest on UK government investments, company dividends, or income from property.
• The rates of tax that normally apply to savings income are the special savings rate of 10%, 20% and in some cases, the higher tax rate of 40%.
• You can get more information on tax rates here
• Your bank or building society will take off tax at 20% before they pay you your interest. For a look at how bank and building society interest is taxed click here.

Back to the top

National Savings or other untaxed interest

• Most of the savings income under this heading (does not include interest on Fixed Rate Savings Bonds which is paid with tax taken off) is paid to you without tax taken off so it is likely that you will have more tax to pay. If your income is very low and your tax allowances are higher, you may not need to pay tax at all. For more information click here

• If you have more tax to pay (Click here for more information on this) the Revenue will either collect it through your PAYE code. or by sending you a tax return to complete followed by a tax bill.

Back to the top

Company dividends

If you receive company dividends (or unit trust distributions), these will be paid to you with a tax credit of 10% taken off. You can find more information on dividends here

Back to the top