Pension rules and tax considerations

Pension drawdown and annuity rules 2024

In this guide: Get the basics of pension and annuity rules, tax considerations and death benefits. 

Pension drawdown rules 2024

The pension drawdown rules in 2024 are:

  1. You must be 55 or over to access your pension without HMRC imposing a tax penalty. In 2028 the minimum age will increase to 57. 
  2. There are no limits on how much you can withdraw from your pension fund each year. 
  3. You can take 25% of your total pension pot up-front as a tax-free cash lump sum and leave your remaining pension pot invested. 
  4. Any further withdrawals from your pension will be taxed at your personal rate of income tax. 
  5. Alternatively, you could just withdraw money as and when you want and receive 25% of each withdrawal tax-free, with the remainder taxed at your usual income tax rate.
  6. Once you start using pension drawdown you are limited to saving a maximum of £4,000 a year into your pension.

Pension lump sum rules 2024

The pension lump sum rules in 2024 are:

  1. You can usually take the first 25% of your pension tax-free. This lump sum does not affect your personal allowance.
  2. You then have to pay income tax at the appropriate rate on any further withdrawals from the remaining 75% of your pension fund.
  3. Alternatively, you could take a series of lump sums spread out over time. 25% of each lump sum you withdraw is tax-free and the remaining 75% of each lump will be taxed as income.

You are also entitled to cash in your pension, if you wish, but it is worth considering all your pension income options before deciding whether this is the right course of action for you. 

Pension annuity rules 2024

The pension annuity rules in 2024 are:

  1. If you want to take 25% of your pension pot as a tax-free lump sum you must do this before you buy an annuity.
  2. You must buy an annuity using the balance of your pension fund, not by other means.
  3. You cannot take a lump sum from your annuity once it has started.
  4. You’ll pay tax on the income you receive from an annuity, just like you do when you receive a salary.

Pension income tax – how much do you pay?

Your pension or annuity provider will automatically deduct income tax from the withdrawals you make or annuity income you receive, according to HMRC’s income tax bands. 

For the 2021/2022 the following tax bands apply:

Band Income Tax rate %
Personal allowance  Up to £12,750 0%
Basic rate £12,751 - £50,270 20%
Higher rate £50,271 - £150,000 40%
Additional rate £150,000+ 45%


Remember, you’ll be taxed on your total pension income, including any other sources you have, for example your state pension, savings, investments and rental income. 

How are pensions and annuities taxed after death?

How your pension and/or annuity is taxed after you die will depend on your age when you die:

  • Under 75 or not yet drawn an income - your pension pot or annuity income can be passed to your beneficiaries tax-free.
  • Over 75 - your beneficiaries will have to pay income tax at their marginal rate on your remaining pension or annuity income

Pensions and annuities are not usually subject to inherit tax. 

pension tax

Want to get the best from your pension?

To make the most of your pension pot, you can get advice or guidance (it’s entirely up to you) from an Age Partnership retirement income specialist. They can also carefully consider a wide range of leading providers to find you the best deal.  

Age Partnership is so confident of finding you the best pension income that they will give you £100 if you find a better like-for-like quote elsewhere.

Calculate your pension income now


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