How is my pension taxed?
Your pension benefits may be subject to tax, depending on how and when they are paid. This page provides a general overview of how tax may apply to your pension.
At retirement
When you retire, you can take part of your benefits as a tax-free cash lump sum, subject to HMRC limits and your personal circumstances.
Under the Scheme, you can generally take up to 25% of the value of your benefits as a tax-free cash lump sum when you retire. The total maximum amount that can normally be taken tax-free from all your pensions over your lifetime is called the Lump Sum Allowance and is currently £268,275.
Most members will not be affected, as the amount they can take is below the Lump Sum Allowance. However, the allowance may affect you if you have built up large pension benefits in this Scheme or in other pension schemes. Also, if you have HMRC protection, or are applying for it, please tell the Scheme Administrator as this may affect your available allowance.
While receiving your pension
Regular pension income is treated as taxable income and may be subject to Income Tax. You won’t pay National Insurance contributions on your pension income.
You’ll pay income tax if your total annual income adds up to more than your Personal Allowance, and this income could include:
- any State Pension you receive
- a private pension, such as a personal pension or a workplace pension like the one you’ve built up with MRC
- employment or self-employment earnings
- any taxable benefits you receive
- any other income you may receive from sources such as savings, investments or property
You can find out more about your Income Tax Personal Allowance on the MoneyHelper website.
If you’re retiring from overseas, your pension will be taxed differently based on where you live. Visit the Retiring from overseas page for more information.
When you die
Depending on your circumstances, your beneficiaries or dependants may be entitled to benefits from the Scheme.
The tax treatment of any benefits paid will depend on the type of payment and individual circumstances at the time.
Understanding the changes to Inheritance Tax
From 6 April 2027, unused pension funds and death benefits will be considered as part of an individual’s estate for Inheritance Tax (IHT) purposes.
For defined benefit (DB) schemes such as this one, some cash lump sums payable on death and Additional Voluntary Contribution (AVC) pots could be assessed for IHT purposes.
Benefits that may be affected by IHT:
- AVC savings
- lump sum death benefits due to loved ones if you aren’t contributing to the Scheme anymore but aren’t yet taking your pension
- lump sum death benefits due to loved ones if you die within five years of beginning to take your pension
Benefits expected to be exempt from IHT:
- lump sum death benefits due to loved ones while you’re a contributing member of the Scheme
- spouse, civil partner, co-habiting partner and dependant’s pensions
- all death benefits paid to a spouse or registered civil partner are currently exempt
You can find out more about inheritance tax on the GOV.UK website.
Important update on inheritance tax
The Government has announced proposed changes to how inheritance tax (IHT) may apply to pensions from April 2027.
Tax rules can change in the future, and the impact of any changes will depend on individual circumstances.
You can find out more about inheritance tax on the GOV.UK website.
As everyone’s circumstances are different, you may wish to seek independent financial or tax advice. Read more in Support & Guidance.
