Many people are under the impression that when they retire they will no longer have to pay any tax. Unfortunately this is not true. There is one benefit of reaching State Pension Age and that is that you no longer have to pay National Insurance Contributions. However, tax is another matter.

When you get to retirement age the amount of tax you will need to pay may decrease though. This may be purely because you are now entitled to an additional tax free allowance (subject to earnings) of £2,015, bringing the personal allowance for someone aged 65 or over to £9,940 for the tax year 2011-12. This increases to a total allowance of £10,500 for the tax year 2012-13.

Another reason that you may pay less tax is that the level of pension you get is likely to be lower than you salary if you have retired, so you may now not fall into a taxable bracket at all. However, these days a lot of people are continuing to work after their retirement age and so may have more tax to pay if they are claiming their State pension as well as receiving a salary. It is possible to delay taking your State pension until a later date if you do not wish to take it straight away. In this case the pension is increased accordingly when it is taken.

So, in answer to the question, yes, you do still have to pay tax when you retire, albeit you may not have to pay quite as much. But whatever earnings you have are subject to income tax after deducting personal allowances.