Martin Lewis returned to the UK’s TV screens recently in an hour-long special of his “Martin Lewis Money Show”. In this show, he covered the basics on mortgages, pensions and credit cards but he also answered questions from viewers.
One question came in from Niraj who asked a simple question which could generate complex answers.
Niraj asked Martin: “What happens when you receive your pension? Do you pay tax?”
Martin was taken aback by the question, as he responded: “Wow, that’s a complex question!”
Despite the complexity, Martin did his best to provide insight, as he continued: “If it’s a money pot pension, you can take 25 percent of it as a tax-free lump sum and you pay tax on the rest at the tax rate you’re earning
A person’s total income could include:
- the State Pension they get (either the basic State Pension or the new State Pension)
- Additional State Pension
- a private pension (workplace or personal)
- earnings from employment or self-employment
- any taxable benefits they get
- any other income, such as money from investments, property or savings
Pension savings in general are limited by what is known as the annual allowance.
This is a limit placed on how much money can be saved into pension pots in a tax year before tax must be paid.
As it stands, the annual allowance is £40,000 this tax year.
Full details on private pensions and tax can be found on the Government’s website and impartial guidance can be sought from the likes of Citizens Advice and the Money Advice Service.