What a pension pot pays you after tax
The tax-free lump sum is not income, but the State Pension is — even though it is paid without tax deducted. That combination is what catches people out in the first year of retirement.
Figures stated for the 2026/27 UK tax year. Content last checked against official sources on .
What this calculator does
- Works out drawdown income from a pot after taking the tax-free lump sum.
- Adds the State Pension and any other income to give a total.
- Calculates the Income Tax due on the taxable portion.
- Reports net annual and monthly income, and the effective tax rate.
How the calculation works
The calculation separates what is taxable from what is not. Up to 25% of the pot can normally be taken as a tax-free lump sum, capped by the lump sum allowance of £268,275, and that money is not income — it never enters the tax calculation. The remainder of the pot is what drawdown income is taken from, at the withdrawal rate you choose. The State Pension is then added, and this is the part that surprises people: it is taxable income, even though it is always paid gross with no tax deducted. HMRC collects the tax on it through the tax code applied to your other income, so a retiree with a modest private pension can find an unexpectedly large deduction taken from that pension to cover tax owed on the State Pension. The Personal Allowance is applied to the combined taxable total and Income Tax charged in the normal bands, giving net income and an effective rate across everything received.
The rule
Taxable income = drawdown income + State Pension + other income. Income Tax is charged on that total after the Personal Allowance. The tax-free lump sum is excluded entirely.
Step by step
- Take the tax-free lump sum, up to 25% of the pot and capped at the lump sum allowance.
- Apply the drawdown rate to the remaining pot to give drawdown income.
- Add the State Pension entitlement and any other income.
- Apply the Personal Allowance and charge Income Tax in the normal bands.
- Subtract the tax to give net income.
Worked example
Someone retiring with a £300,000 pot, taking the 25% tax-free lump sum, drawing 4% of the remainder, with a full State Pension record of 35 qualifying years.
What was entered
| Pension pot | £300,000 |
|---|---|
| Take the 25% tax-free lump sum? | Yes |
| Drawdown rate | 4% |
| State Pension qualifying years | 35 |
| Other annual income | £0 |
The arithmetic
- 25% of £300,000 is a £75,000 tax-free lump sum, well within the £268,275 lump sum allowance.
- That leaves £225,000 in drawdown, and 4% of it is £9,000 a year.
- A full 35-year record gives a State Pension of £241.30 a week, which is £12,547.60 a year.
- Total gross income is £21,547.60 — and all of it is taxable, including the State Pension.
- After the £12,570 Personal Allowance, £8,977.60 is taxed at 20%: £1,795.52.
- Net income is £19,752.08 a year, or £1,646.01 a month, an effective rate of about 8.3%.
What the calculator returns
| Tax-free lump sum | £75,000.00 |
|---|---|
| Drawdown income | £9,000.00 |
| State Pension | £12,547.60 |
| Total gross income | £21,547.60 |
| Income Tax | £1,795.52 |
| Net income for the year | £19,752.08 |
| Net income a month | £1,646.01 |
Key assumptions
- The full tax-free lump sum is taken at outset, which is one of several possible approaches.
- The State Pension entitlement is estimated from qualifying years alone.
- The drawdown rate is applied to the pot after the lump sum has been removed.
- The Personal Allowance is available in full against this income.
Limitations
- This is an estimate, not a State Pension forecast. Records that began before April 2016 are worked out under transitional rules, and contracted-out periods change the answer. Check your own forecast on GOV.UK.
- The pot is not projected forward or drawn down over time, so this is a single year's picture rather than a sustainability test.
- Taking the whole lump sum immediately is not always optimal; phasing withdrawals can use allowances more efficiently.
- Drawing income flexibly triggers the money purchase annual allowance, sharply reducing what you can still contribute — this is not modelled.
- Pension decisions are difficult to reverse. Pension Wise offers a free appointment from age 50 and this is not advice.
Common questions
Is the State Pension really taxable?
Is the 25% lump sum always tax-free?
Will this income last?
Should I take the lump sum all at once?
Related calculators
- Annuity Calculator — Compare drawdown with buying a guaranteed income through an annuity.
- Retirement Target Calculator — Work out whether the pot will be there in the first place.
- UK Income Tax Calculator — See how the Income Tax on retirement income is calculated in detail.
- Safe Withdrawal Rate Calculator — Test whether the drawdown rate is sustainable across a long retirement.
Official sources
Every figure in this guide was checked against the sources below. Where a source could not confirm a figure, it is marked as requiring verification rather than presented as settled.
- Tax on your private pension contributions: lump sum allowance — GOV.UKUsually up to 25% of a pension can be taken tax-free, capped by a lump sum allowance of £268,275
- The new State Pension: what you'll get — GOV.UKFull new State Pension £241.30 a week; 35 qualifying years for the full rate where the record began after April 2016
- Tax when you get a pension — GOV.UKPension income is taxable; tax-free lump sums are limited by the lump sum allowance
- Pension Wise: free pension guidance — MoneyHelperFree impartial guidance on pension options, available from age 50