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We're using my pension to go on our dream holiday.

Christine, 65, has built up a defined contribution pension pot of £17,000. Her husband has final salary pension income of £10,000 per year. They paid off their mortgage a few years ago and have £3,000 of savings which has been set aside for emergencies. She receives the full State Pension.


What Christine wants

We want to use the money from my pension to pay for the holiday we’ve always dreamed of.

Christine's idea

I don’t currently pay tax but I know that if I took out everything from my pension pot in one go, I’d have to pay some. I’d prefer to avoid that if possible so I’ll spread the payments over a few years. That way, I should keep within my personal allowance.

What Christine does

  1. Christine takes one quarter of her pension pot as a tax-free cash sum of £4,250

  2. She uses the rest to buy a fixed term annuity for 4 years

  3. She will receive £3,250 per year for 4 years

  4. This amount added to her State Pension still keeps her within her personal allowance so there’s no tax payable

  5. The tax free lump sum and first income payment from the fixed term annuity gives her £7,500 towards her holiday

What Christine gets

Tax-free cash £4,250
Fixed term annuity £3,250 a year

See how we worked this out

  • State Pension age64
  • State Pension£8,767
  • Pension pot£17,000
  • Other savings£3,000
  • Other income£10,000 a year (spouse)
  • Property value£180,000

Christine's calculation

Personal allowance (0% tax) Earnings from £0 to £12,500
State Pension £8,767 a year
Remaining personal allowance £3,733
Fixed term annuity £3,250 a year

Important things to consider

  • The income Christine gets from her fixed term annuity is a fixed amount for 4 years. As a result, the effect of inflation will reduce the buying power of her income over the term

  • Christine has chosen to guarantee the income from her fixed term annuity. This means that if she dies before the end of the fixed term, her husband, as named beneficiary, will continue to receive the income until the end of the term

  • After 4 years, Christine’s fixed term annuity will end. She’ll then have to rely on her State Pension and her husband’s final salary pension for income for the rest of their retirement unless she has any other assets she can use to give her an income or is able to claim any state benefits

  • If her husband dies before her, she may still receive a portion (for example 50%) of his final salary pension

  • Once the fixed term annuity is set up and the cancellation period has expired, she may not be able to cancel or change her options

  • Better deals may be available so it’s important to shop around

  • This example is based on current law and tax rates. These may change in the future and income tax will depend on individual circumstances

  • If you live in Scotland or Wales you may have a different income tax rate or band

  • The State Pension amount shown here is the current maximum and is only an example. The amount you get depends on your National Insurance contributions’ record and your individual circumstances. You can get a State Pension forecast by visiting View - Check your State Pension

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