If you are a mature student and you have reached pension age, you may receive a pension. As soon as you begin to receive a pension, you need to check your tax position carefully.
All pensions are taxable, including the state pension, so if you are receiving more than one pension or a pension and other earnings, you need to check your Notice of Coding carefully.
You should note that although the state pension is liable to income tax, there is never any tax deducted from it when it is paid. This means that your personal allowance will need to be used at least in part against this source.
The standard weekly rate of the new state pension for 2019/20 is £168.60 for those who reached state pension age on or after 6 April 2016, using up personal allowances of £8,767 for the whole year and meaning you have less allowances to set against other courses of income. The maximum weekly basic state pension is £129.20 for those who reached state pension age before 6 April 2016. That means if you received the basic state pension for the whole year, it would use £6,718 of your personal allowances.
Pensions, other than the state pension, from 6 April 2015
The rules relating to drawing pensions changed substantially from 6 April 2015. In general, a lump sum payment of up to 25% of the pension fund may be paid to you tax-free, provided you have reached retirement age. There is also increased flexibility in the way you can access the balance of your pension savings, although if you are in a defined benefit (or ‘final salary’) scheme it is likely that you will continue to receive a regular income.
Before you take any action with regard to drawing a pension, we recommend you seek advice from Pensionwise, who will provide free independent guidance or from an independent financial adviser, who you will have to pay.
Because you may choose to receive sums from your pension scheme(s) at more irregular intervals, it is crucial that you let HMRC know what you withdraw and when. You should also keep all details of any tax deducted from pension withdrawals safe as this may support a repayment claim in the future: in any case it will confirm tax you have already paid should you have further tax to pay.
For further information on the rules relating to the taxation and accessing pensions, we recommend you visit the LITRG website.