If my pension income is taxed when I retire, why is a pension a good deal?

You can usually take up to 25% of your pension pot tax-free. Depending on your tax rate during your working life and in retirement, you may also end up paying a lower rate of income tax on pension withdrawals than you get in tax relief when paying into your pension. For example, you could pay income tax at the higher rate of 40% while working, but only the basic rate of 20% when retired and living on a smaller income. Plus, investments held in your pension benefit from exemptions from income tax and capital gains tax, so overall a pension scheme is a really tax-efficient way of saving for your retirement.

Updated on: 25/08/2021