Northern Ireland and UK retirement planning • Rules checked on 7 October 2026 • Tax year 2026/27

The way you combine pension income, savings and ISA withdrawals can affect your tax bill. Drawing everything from one account may mean missing an allowance or paying more tax than necessary. A careful annual review can help you keep more of your retirement income, although some apparent savings simply postpone tax until a later year.

Why pensioners can face tax on modest extra income

The full new State Pension is £241.30 a week in 2026/27, equivalent to £12,547.60 over 52 weeks. Against the standard £12,570 Personal Allowance, that leaves just £22.40 before other taxable income uses up the allowance. Your actual State Pension may be different, so use your own figures. [1]

2026/27 allowance or rate	Amount
Standard Personal Allowance	£12,570
Full new State Pension over 52 weeks	£12,547.60
Allowance remaining in this example	£22.40
Basic Income Tax rate in Northern Ireland	20%
Higher rate begins with a full allowance	Total taxable income above £50,270

 

State Pension counts as taxable income even though it is normally paid without tax being deducted. The standard Personal Allowance reduces when adjusted net income exceeds £100,000. Scottish rates for pension income differ. [2]

Use available allowances before State Pension starts

Someone who retires before State Pension age may have years when their Personal Allowance is unused. Taking some taxable pension income during those years, alongside tax-free ISA withdrawals, can make better use of that allowance. Ordinary ISA withdrawals do not themselves use the Personal Allowance. [1, 3]

Illustration with no other taxable income	Annual amount
Taxable pension income covered by Personal Allowance	£12,570
ISA withdrawal	£12,430
Total available for living costs	£25,000
Income Tax on this combination	£0

 

This assumes the pension can be accessed and the scheme offers suitable withdrawals. It does not assume that 25% of every withdrawal is tax free. Future tax rates, charges and remaining pension allowances affect whether the approach saves tax overall. Check your own State Pension age and pension access rules. Taking taxable flexible pension income may also restrict future contributions. [4, 7]

Review savings ownership between spouses

Married couples and civil partners should look at both sets of savings allowances. A spouse with little income may have unused Personal Allowance and access to the starting rate for savings, as well as the Personal Savings Allowance. [5]

Savings provision	2026/27 position
Starting rate for savings	Up to £5,000 of interest at 0%; reduced by £1 for every £1 of other income above the Personal Allowance
Personal Savings Allowance for basic rate taxpayers	£1,000
Personal Savings Allowance for higher rate taxpayers	£500
Personal Savings Allowance for additional rate taxpayers	£0

 

For example, one spouse receives the full new State Pension plus a £10,000 workplace pension, while the other receives only the full new State Pension. The couple also earns £10,000 of savings interest. Assuming both remain basic rate taxpayers, the following allocation illustrates the difference. [5]

Where savings interest belongs	Tax on the interest
All £10,000 belongs to the spouse with the workplace pension	£1,800.00
£6,022.40 belongs to the spouse with State Pension only; £3,977.60 belongs to the other spouse	£595.52
Illustrative annual reduction	£1,204.48

 

The lower-income spouse can cover £6,022.40 using the remaining £22.40 Personal Allowance, £5,000 starting rate and £1,000 savings allowance. The other spouse uses their £1,000 savings allowance. These are calculations using the stated assumptions, not a universal saving.

A transfer must be an outright gift of the underlying savings, with genuine ownership and entitlement to the interest. Merely changing an account name or directing interest to someone else is not enough. The result depends on each person’s actual income and the timing of the gift. [6]

Combine pension withdrawals with ISA savings

Eligible pension withdrawals can normally include up to 25% tax-free cash, subject to available allowances and scheme rules. The standard lump sum allowance is £268,275 across pensions, although protections may change it. Phased withdrawals can help manage taxable income; taking all available tax-free cash immediately is not automatically the best choice. [4]

Consider a couple who each receives a full new State Pension and needs £50,000 net a year. Their combined State Pensions provide £25,095.20, leaving £24,904.80 to find. Each has £22.40 of Personal Allowance remaining. The illustration below assumes pension withdrawals are divided equally between them and taxed at 20%.

Annual amounts	Fully taxable pension top-up	Pension plus ISA top-up
State Pensions combined	£25,095.20	£25,095.20
Gross private pension withdrawals	£31,119.80	£20,000.00
Tax-free part of those withdrawals	£0.00	£5,000.00
Income Tax on private pensions	£6,215.00	£2,991.04
ISA withdrawal needed	£0.00	£7,895.84
Total net spending money	£50,000.00	£50,000.00

 

The second approach reduces that year’s tax by £3,223.96. Part of the benefit may be deferred tax on pension money left invested. This comparison also uses remaining tax-free pension entitlement, which the first approach assumes has already been exhausted. It therefore does not measure an unconditional lifetime saving. Income and allowances belong to individuals, so the result changes if only one person owns the pension or has other income.

Pension contributions may still qualify for relief

Retirement does not automatically end pension tax relief. An eligible UK resident under 75 with no relevant earnings can generally pay £2,880 into a relief-at-source pension and receive £720 of basic rate relief, making £3,600 gross. Pension income itself is not relevant earnings for this purpose. Someone with £5,000 of qualifying earnings may instead pay £4,000 net to make a £5,000 gross contribution, subject to the applicable limits. [7]

Do not confuse the £720 contribution top-up with a guaranteed £720 net gain: withdrawals may later be taxable and provider charges may apply. After certain flexible taxable pension withdrawals, the Money Purchase Annual Allowance limits defined contribution pension input to £10,000 a year, including employer contributions and tax relief. Taking only tax-free cash does not normally trigger it. The separate earnings restriction still applies. [8]

Inheritance Tax changes also affect decisions

For deaths on or after 6 April 2027, most unused pension funds and pension death benefits will be included in the estate for Inheritance Tax. This does not mean every pension will incur tax: exemptions, available estate allowances and excluded benefits remain relevant. The change is a reason to review plans, not a reason to withdraw a pension indiscriminately. [9]

Review the whole position before making changes

At Bernard Tierney & Company, we can help review your taxable income and available allowances. Decisions about pension investments or drawdown products may also require a regulated financial adviser. Bring details of both partners’ pensions, expected income, savings interest and ISA balances so the figures can be considered together.

This article provides general tax information based on the 2026/27 rules checked on 7 October 2026. The examples are illustrative and do not replace advice on your own circumstances.

Sources

[1] State Pension
https://www.gov.uk/new-state-pension/what-youll-get

[2] Income Tax rates and allowances
https://www.gov.uk/government/publications/rates-and-allowances-income-tax/income-tax-rates-and-allowances-current-and-past

[3] ISA withdrawals
https://www.gov.uk/individual-savings-accounts/withdrawing-your-money

[4] Tax-free pension payments
https://www.gov.uk/tax-on-pension/tax-free

[5] Savings interest allowances
https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-is-tax-free

[6] Outright gifts between spouses
https://www.gov.uk/hmrc-internal-manuals/trusts-settlements-and-estates-manual/tsem4205

[7] Pension tax relief
https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/tax-relief-and-your-pension

[8] Money Purchase Annual Allowance
https://www.moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions/money-purchase-annual-allowance-mpaa

[9] Inheritance Tax on pensions
https://www.gov.uk/government/publications/inheritance-tax-on-pensions-technical-note/technical-note-inheritance-tax-on-pensions