HMRC has launched new guidance to help people understand how tax works in retirement, including checks on pensions, tax codes, National Insurance records and unexpected tax bills.
HMRC has launched new guidance to help people understand how tax works in retirement.(Image: Getty )
People approaching retirement age are being urged to carry out a series of important financial and tax checks as part of a new HM Revenue and Customs (HMRC) awareness campaign aimed at helping pensioners avoid costly mistakes.
The UK Government’s new ‘Tax Confident’ guidance explains how tax works once people start receiving the State Pension, workplace pensions and other retirement income. HMRC said many people entering retirement wrongly assume their tax affairs become simpler, when in reality income can start coming from several different sources at once.
The guidance on GOV.UK encourages people nearing retirement to check their State Pension forecast, review their National Insurance record, understand how pension withdrawals are taxed and make sure they are not paying too much tax through the wrong tax code.
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One of the biggest checks is whether people are on track to receive the full New State Pension.
For the 2026/27 tax year, the full New State Pension is worth £241.30 a week, or £12,547.60 a year, but not everyone receives the full amount.
HMRC said most people usually need at least 35 qualifying years of National Insurance contributions for the full payment and at least 10 years to receive anything at all.
People with gaps in their National Insurance record may still be able to boost their future pension by claiming credits or paying voluntary contributions.
The guidance also highlights that the State Pension is taxable, even though tax is not automatically deducted before payments are made.
Instead, HMRC normally adjusts a person’s tax code on private pensions or wages to recover any tax owed. In some cases, pensioners may receive a Simple Assessment letter asking them to pay underpaid tax directly.
Retirees are also being warned to think carefully before taking large pension lump sums.
Under current rules, people can normally withdraw up to 25 per cent of a private pension tax-free, but larger withdrawals can push retirees into higher tax bands for that year.
HMRC’s new campaign also reminds pensioners that tax may still apply if they continue working after reaching State Pension age or receive income from savings, investments or rental property.
The department said understanding retirement tax rules early can help people avoid unexpected bills later on.
The full guidance includes information on pension tax, inheritance tax, working in retirement, savings income and how tax is collected from pensioners. You can view it on GOV.UK.
