Tax and your pension
Your local government pension is taxable, but your lump sum is tax-free.
Merseyside Pension Fund will notify HM Revenue & Customs (HMRC) that you are in receipt of your local government pension and a new tax code will be issued. If your tax code is not known immediately, a temporary code will be used until we have received the correct information.
How much tax will I pay?
Whether you pay tax when you retire, depends on the amount of your pension and other personal circumstances. Pension income is normally treated as earned income for income tax purposes, although you do not pay any National Insurance contributions on your pension income.
The amount of income tax that you pay depends on your total annual income. Other than your local government pension, your total income could include:
- the State Pension you get (either the basic State Pension or the new State Pension)
- Additional State Pension
- a private pension (workplace or personal) - you can take some of this tax-free
- earnings from employment or self-employment
- any taxable benefits you receive
- any other income, such as money from investments, property or savings
You do not pay any income tax, if your gross taxable income does not exceed your Personal Allowance. The standard Personal Allowance for the tax year 2023/2024 is £12,570.
The amount of income tax you pay in each tax year depends on:
how much of your income is above your Personal Allowance, and
how much of this falls within each tax band
HMRC should tell you how much your Personal Allowance is each time it changes.
If you live in Scotland you will receive the same Personal Allowance for 2023/2024, but your tax bands will be different. HMRC will determine if you are a Scottish taxpayer.
You can check your current tax code by accessing your monthly pension payslip on our online MyPension service. You can register to use MyPension here.
Queries about your Tax Code
Merseyside Pension Fund is obliged by law to comply with tax code notices issued by HMRC and such notices are based on your overall income position.
HMRC can instruct us to update your tax code throughout the year which may result in a refund of tax paid or any arrears of tax due being collected.
Merseyside Pension Fund cannot amend your tax code without instructions from HMRC and cannot contact the Tax office on your behalf.
If you have a query about your tax code, please contact HMRC directly:
HM Revenue and Customs
Pay As You Earn and Self Assessment
Telephone: 0300 200 3300 (From overseas please dial: +44 135 535 9022)
Textphone: 0300 200 3319 (for hearing and speech impaired members)
Tax Reference: 428/M1 (please quote this as well as your National Insurance number in all cases)