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I’m using my pension to help us buy a home.

Susan, 67, has final salary pension income of £6,000 per year as well as a defined contribution pension pot of £12,000. Her husband has final salary pension income of £20,000 per year and they both receive their full State Pension. They’re currently renting and have £120,000 in savings that they were left by Susan’s mother.


What Susan wants

We want to use our savings and my pension pot to buy a house so that we won’t have to pay rent anymore.

Susan's idea

Given that it’s a modest amount and I’m already a basic rate tax payer, taking my pension pot in one go feels like the right thing for me to do. It’ll make a useful contribution towards our home.

What Susan does

  1. Susan takes one quarter of her pension pot as a tax-free cash sum of £3,000

  2. She takes the remaining £9,000 as a taxable lump sum

  3. As her other income puts her in the basic rate tax band, she pays £1,800 tax on the lump sum and receives £7,200

  4. In total Susan receives £10,200 which she uses towards buying a house

What Susan gets

Tax-free cash £3,000
Taxable lump sum £9,000 (£1,800 tax leaving £7,200)
Total £10,200

See how we worked this out

  • State Pension age62
  • State Pension£6,718
  • Pension pot£12,000
  • Other income£6,000 a year
  • Other savings£120,000
  • Property price£145,000

Susan's calculation

Personal allowance (0% tax) Earnings from £0 to £12,500
State Pension £6,718 a year
Final salary pension £6,000 a year
Regular income (subject to tax) £12,718 a year
Lump sum (20% tax) £9,000 (£1,800 tax payable)

Important things to consider

  • As Susan is already in the 20% tax band due to her income, she pays tax at that rate

  • Once Susan has spent all of the money from her pension pot, she'll have to rely on on her final salary pension and her State Pensions, unless she has any other assets she can use to give her an income or is able to claim any additional state benefits

  • If Susan had left the money in the pension pot untouched, the value may have risen, allowing her to withdraw a larger amount at a later date

  • However, there is also a risk that the value of the pot could fall and is not guaranteed

  • 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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