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I'm using my pension to enjoy my retirement.

Kirsty, 65, is divorced and has built up a defined contribution pension pot of £30,000 whilst working. She receives final salary pension income of £16,000 per year and her full State Pension. She rents her flat and has £60,000 in savings.


What Kirsty wants

I want to make the most of my retirement while I’m still fit enough, so I‘m going to use my pension pot to enjoy myself. I’m happy to live off my final salary pension and State Pension as I slow down.

Kirsty's idea

I’m going to need less as I get older, but right now I’m very active. If I use my pension pot to improve my income for the next 15 years, I’ll enjoy myself while I can.

What Kirsty does

  1. Kirsty 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, receiving £1,630 a year

  3. As her other income puts her in the basic rate tax band, she pays £326 a year tax on the regular income from the fixed term annuity

What Kirsty gets

Tax-free cash £7,500
Fixed term annuity £1,630 a year, subject to tax

See how we worked this out

  • State Pension age65
  • Flat rate State Pension£8,767
  • Pension pot£30,000
  • Other income£16,000 a year
  • Other savings and investments£60,000
  • Rental cost£6,500

Kirsty's calculation

Personal allowance (0% tax) Earnings from £0 to £12,500
Basic rate (20% tax) Earnings from £12,501 to £50,000
State Pension £8,767 a year
Final salary pension £16,000 a year
Total regular income (subject to tax) £24,767 a year
Fixed term annuity (subject to 20% tax) £1,630 a year

Important things to consider

  • The income Kirsty 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

  • Kirsty has chosen to guarantee her income, so if she dies before the end of the 15 years term, her estate will continue to receive the income until the end of the term

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

  • 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

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

  • This example is based on current laws 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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