Consider tax when setting your income goal
Updated 09 March 2021
When you're setting a goal for your retirement income, you should consider increasing your goal to account for any tax you may need to pay.
Depending on your income position at retirement, you may have to pay tax on the income you take from your pension (withdrawals taken from ISAs are not taxable).
There are a number of considerations here in determining what tax you may need to pay:
- Do you have other retirement income as well as the money you expect to get from your pension?
- Will you take a tax-free cash lump sum (typically up to 25% of the pension pot value)?
- Will you take a steady income or vary this year by year (this could take you in and out of different tax bands)
For example - If the information you provide to the Lifestyle planner suggests you need an income of £34,357.50 e.g. £12,570 tax free and £21,787.50 at basic rate (20% - £4,357.50) = £34,357.50 target income. These figures are based on a 'rest of the UK' taxpayer. The figures would be different for a Scottish taxpayer.
This information is based on our understanding of current, taxation law and HMRC practice, which may change. Current tax rates and bands are available below:
The tax treatment depends on individual circumstances and may be subject to change in the future.