We don’t support this browser anymore.
This means our website may not look and work as you would expect. Read more about browsers and how to update them here.

Skip to main content
  • Register
  • Help
  • Contact us

Pension withdrawals set to surge – don’t pay more tax than you need to

With the end of tax year on the horizon, and pension withdrawals set to surge, we reveal what to consider before you take money out of your pension.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This article is more than 6 months old

It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.

It’s been almost five years since pension freedoms were introduced, and we were given more control over our pensions. Our evidence suggests that those making withdrawals have settled into the flexible rules and are managing money sensibly – much to the disappointment of Lamborghini.

Rather than taking money out, irrespective of timings and tax implications, those taking benefits are choosing to carefully manage income withdrawals in harmony with tax allowances. Remember you can’t take money out of your SIPP until 55, rising to 57 from 2028.

Our data shows that in March 2019, the number of people taking money out of their HL SIPP soared, with a 20% uplift from January 2019.

Remember that income is typically taxed on a cumulative basis – more of your personal allowance becomes available as you progress through the tax year.

Number of HL clients taking income payments in 2019

Source: HL, clients taking pension income payments in 2019

This article is not personal advice. If you’re not sure of the suitability of a product or action for your circumstances, seek advice. Tax rules change and benefits depend on personal circumstances. If you’re a Scottish tax payer different tax bands apply.

4 top tips before taking money from your pension

1. Remember it’s a juggling act – balance your income and tax

The income you take from your pension is taxable. And it’s added to any other income you receive in the tax year.

A sensible way to manage your income is to take payments in line with tax bands. For the 2019/20 tax year, you start paying 20% tax on the income above £12,500 and then 40%, the higher rate tax band, on the income above £50,001. You can use these tax bands to your advantage by making sure your income is below these tax thresholds.

If you’re still receiving income from employment and you plan to take an income from your pension too, remember that your pension income could push you into a higher tax band.

Standard tax bands based on a personal allowance of £12,500 in 2019/2020

(If you're a Scottish Rate tax payer, different rates and bands will apply)

Try our income tax calculator to give you an idea of how much tax you’ll pay on your pension payment.


2. Make sure you plan together

It can actually pay to plan your finances with your other half.

If you’re married or in a civil partnership you can also make use of each other’s tax allowances and tax bands.

Let’s say your partner is a basic-rate or non-tax payer. You work full time and pay higher-rate tax. As a couple you need some extra income. Between you it could make more financial sense to withdraw from your partner’s pension. If you made the withdrawal from your own pension you could become an additional-rate tax payer, by pushing yourself into the next tax bracket.

If one of you is a basic-rate tax payer and the other is a non-tax payer, you can also transfer Personal Allowances. The lower earner can transfer 10% of their tax free Personal Allowance to the higher earner.

More about transferring your allowance

3. Take advantage of your ISA allowance

An ISA is another way you can shelter your cash and investments from UK income and capital gains tax. It can be useful to stash away any spare money into an ISA to supplement your pension income in the future. Anything you withdraw from an ISA is tax-free, and you can take payments whenever you need to, but remember, investing should only be considered for the long term (5+ years).

Investing as much as you can into an ISA each tax year can help you build up a sizable tax-free investment. This tax year (2019/20) the ISA allowance is £20,000.

Please remember that all investments and income, rise and fall in value. So you could get back less than you invest.

More on ISAs

4. Hold a cash buffer

If you’ve decided to keep your pension invested, consider keeping a cash buffer for your future income payments.

Choosing to keep your pension invested while taking an income (either in drawdown or taking lump sum payments) is a riskier option than buying an annuity. If your investments don’t perform as well as you might have hoped, you might have to limit your income.

In the worst case scenario you could run out of money. But holding a cash buffer could help. This means you’d avoid the need to sell your investments to fund your income during periods of poor market performance.

For more tax savings tips, download our how to save tax in retirement guide.


This article, including our guides and calculator, is not personal advice. What you do with your pension and savings is an important decision. So we strongly recommend you understand your options and check your chosen option is suitable for your circumstances. Ask for advice or seek guidance if you’re unsure.

Pension Wise, the government's pension guidance service, provides a free impartial service to help you understand your options at retirement - more on Pension Wise.

We offer a range of information and support to help you plan your own finances.. If you would like personal advice, our team of financial advisers can help you achieve your goals. You only pay for the advice you need.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Editor's choice – our weekly email

Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:

  • Latest comment on economies and markets
  • Expert investment research
  • Financial planning tips
Sign up

Related articles

Category: Investing and saving

Autumn statement – National Insurance tax change plus ways to help cut your tax bill

The headline grabbing National Insurance cut might look like good news, but the tax burden is still set to be the highest it’s been since the Second World War. Here’s what’s changed and what you can do to reduce your tax bill.

Helen Morrissey

30 Nov 2023 4 min read

Category: Investing and saving

Lost track of a pension? – what you need to know

If you’ve lost a pension, you could be missing out on thousands of pounds in retirement income. Here’s how to find a lost pension.

Helen Morrissey

14 Nov 2023 3 min read

Category: Funds

Bond funds sector review – are we near peak interest rates?

We look at the headlines gripping bond markets, share our outlook for bonds, and discuss how some of our Wealth Shortlist funds have fared.

Hal Cook

10 Nov 2023 5 min read

Category: Funds

Investing in gold: 3 fund ideas to diversify a portfolio

Want to invest in gold? Here are three fund ideas to consider.

Hal Cook

08 Nov 2023 3 min read