Case studies

Here are your results based on these filters.

  • Defined contribution pension pot of
  • Other retirement income of
  • Savings (excluding pensions) of
  • Examples of
Back to results

Arthur

I’m withdrawing my money in stages to avoid paying higher rate tax.

Arthur, 66, has final salary pension income of £27,500 a year, a defined contribution pension pot of £24,000 and receives his full State Pension. He and his wife have £60,000 of savings and own their home.

Arthur

What Arthur wants

I’m keen to have the money from my pension pot as quickly as possible, so that I can then choose what to do with it, but not so that I pay more tax than I need to. I’m happy that we have enough income to live off from my final salary pension and State Pension.

Arthur's idea

I don’t want to pay 40% tax on any of my pension pot, so I’m going to spread the payments over the shortest time possible. I want to ensure I stay in the basic rate tax band and avoid paying any additional tax.

What Arthur does

  1. Arthur takes one quarter of his pension pot as a tax-free cash sum of £6,000

  2. He uses the rest to buy a fixed term annuity over 3 years receiving £6,000 a year for 3 years (subject to tax)

  3. By withdrawing his pot in stages he stays in the basic rate tax band and pays £1,200 per year tax on the regular income from his fixed term annuity

What Arthur gets

Tax-free cash £6,000
Fixed term annuity £6,000 a year, subject to tax

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£24,000
  • Other income£27,500
  • Other savings£60,000
  • Property value£250,000

Arthur'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 £27,500 a year
Regular income (subject to tax) £36,046 a year
Fixed term annuity (taxed at 20%) £6,000 a year

Important things to consider

  • Arthur withdrew his pension pot in the quickest time possible while staying in the basic rate tax band

  • The income Arthur receives from his fixed term annuity is a fixed amount for 3 years. As a result, the effect of inflation will reduce the buying power of his income over the term of the plan

  • Arthur has chosen to guarantee the income from his fixed term annuity. This means that if he dies before the end of the fixed term, his wife, as his named beneficiary, will continue to receive the income until the end of the plan term

  • Once a fixed term annuity is set up and the cancellation period has expired, he may not be able to cancel or change his 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 

Back to results