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Examples of State Pension collected via a company pension provider

Example - tax year 2009-10

You're 67, have retired and get a company pension of £6,000 and a State Pension of £4,953.

You're entitled to the full age-related Personal Allowance for your age-group because your total taxable income is less than £22,900 - the income limit.

Your tax code is adjusted to collect the tax due on your State Pension out of your company pension like this:

• your age-related Personal Allowance - the amount of income you can receive tax-free in the tax year - is £9,490
• HM Revenue & Customs (HMRC) subtract your State Pension of £4,953 (this is taxable income that you are in fact receiving without tax taken off - to take account of this it's taken from your tax-free Personal Allowance)
• that leaves you with a balance of Personal Allowance of £4,537 (this is the remaining amount of income you can receive without paying tax)
• your tax code becomes 453P - P indicates entitlement to the full age-related Personal Allowance for age 65-74 and 453 is the amount of allowance with the last number knocked off
• HMRC subtract the balance of your Personal Allowance (£4,537) from your company pension (£6,000)
• that means that the amount of company pension you pay tax on is £1,463

Example - tax year 2008-09

You're 67, have retired and get a company pension of £6,000 and a State Pension of £4,716.

You're entitled to the full age-related Personal Allowance for your age-group because your total taxable income is less than £21,800 - the income limit.

Your tax code is adjusted to collect the tax due on your State Pension out of your company pension like this:

• your age-related Personal Allowance - the amount of income you can receive tax-free in the tax year - is £9,030
• HMRC subtract your State Pension of £4,716 (this is taxable income that you are in fact receiving without tax taken off - to take account of this it's taken from your tax-free Personal Allowance)
• that leaves you with a balance of Personal Allowance of £4,314 (this is the remaining amount of income you can receive without paying tax)
• your tax code becomes 431P - P indicates entitlement to the full age-related Personal Allowance for age 65-74 and 431 is the amount of allowance with the last number knocked off
• HMRC subtract the balance of your Personal Allowance (£4,314) from your company pension (£6,000)
• that means that the amount of company pension you pay tax on is £1,686

Further information

To find out more about how your tax code is worked out if you get a pension and and/or state benefits including the State Pension read the related article ‘Pensions, state benefits and your tax code’.

• Pensions, state benefits and your tax code

More useful links

• Tax Codes - find out more information