When you take money from your pension, the first 25% is tax-free. The rest (75%) is taxed as income based on your total income for the year. In the Cushon app, an estimate shows the tax due and the amount you will receive, based on basic rate tax.

 

Your first withdrawal is usually taxed at an emergency rate. This prevents underpayment and large tax bills later. Tax is collected automatically through Pay As You Earn (PAYE). You do not need to do anything to pay it.

 

Once you access your pension savings, the amount you can pay into any pension each year usually reduces. Your allowance changes from the standard annual allowance to the Money Purchase Annual Allowance, which is lower. Both allowances are set by the government and can change. If you keep paying into a pension after taking money out, contributions above your limit will be taxed at your highest rate.