RPSM04101020 - Technical Pages: Taxation: Authorised member payments: Taxation of pensions

Taxation of pensions

Pension income from a registered pension scheme is taxable on the amount that accrues in a tax year. A pension from a registered pension scheme includes (for both members and dependants)

• a scheme pension,
• a lifetime annuity,
• a short-term annuity, and
• income withdrawal.

Any unauthorised pension paid under a registered pension scheme will also be chargeable to income tax as pension income unless the unauthorised pension has been assessed to income tax as an unauthorised payment. For more details about the unauthorised payments charge see RPSM04104000.

The person receiving or entitled to receive the pension is liable to tax on the pension. PAYE applies to all pensions from registered pension schemes. The payer of the pension must operate PAYE in accordance with the PAYE rules before paying the pension.

There are transitional provisions for

• retirement annuity contracts – see RPSM04101040,
• pensions that were taxed before 6 April 2006 but accrued after 5 April 2006 – see RPSM04101050,
• pensions that were accrued but not taxed before 6 April 2006 – see RPSM04101050, and
• annuities that are paid from a scheme that was formerly an approved pension scheme that does not become a registered pension scheme.