Consider tax when setting your income goal

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 aren't taxable).

Here are a few of things you might want to consider and the 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 HM Revenue & Customs practice, which may change. The value of any tax relief will depend on individual circumstances, which may change. 

Rest of the UK current income tax rates and bands are available below:

https://www.gov.uk/income-tax-rates

Current Scottish Income Tax rates and bands are available below:

https://www.gov.uk/scottish-income-tax