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Hannah

I’m using my pension to enjoy an active retirement.

Hannah is 65 and worked for her entire career, building up a defined contribution pension pot of £30,000. She’s divorced and has a son. She owns her own home, has £20,000 of savings, final salary pension income of £9,500 per year as well as her full State Pension.

Hannah

What Hannah wants

I want to boost my income now while I’m enjoying an active retirement, but I’m happy to live off my final salary pension and State Pension later on when I start to wind down.


Hannah's idea

When I’m older, my needs will be fewer. I’m going to use my pension pot to boost my income now, during my most active years of retirement so I can enjoy myself and have fun.


What Hannah does

  1. Hannah takes one quarter of her pension pot as a tax-free cash sum of £7,500

  2. She uses the rest to buy a fixed term annuity over 15 years

  3. She'll receive £1,575 per year for 15 years taxed at 20%

  4. As her other income puts her in the basic rate tax band, she pays £315 per year tax on the regular income from her fixed term annuity


What Hannah gets

Tax-free cash £7,500
Fixed term annuity £1,575 a year, subject to tax

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£30,000
  • Other income£9,500 a year
  • Other savings£20,000
  • Property value£125,000

Hannah's calculation

Personal allowance (0% tax) Earnings from £0 to £11,850
Basic rate (20% tax) Earnings from £11,851 to £46,350
State Pension £8,546 a year
Final salary pension £9,500 a year
Fixed term annuity £1,575 a year
Total income (subject to tax)

£19,621 a year

(20% tax payable on £7,771)


Important things to consider

  • The income Hannah receives from her fixed term annuity is a fixed amount for 15 years. As a result, the effect of inflation will reduce the buying power of her income over the term of the plan

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

  • After 15 years, Hannah’s fixed term annuity will end. She'll have to rely on her savings, final salary and State Pension in retirement unless she has any other assets she can use to give her an income or is entitled to claim any additional state benefits

  • Once a 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

  • Tax payable on the income will be taken off before it is paid out

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

  • The income tax rates and bands for Scottish residents may be different

  • 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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