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Mark

I’m using my pension to make the most of my retirement.

Mark is 66, divorced and has a daughter. He receives his full State Pension, has final salary pension income of £25,000 per year and a defined contribution pension pot of £60,000. He rents his flat and has savings of £25,000.

Mark

What Mark wants

My final salary pension and State Pension cover my living costs. I want to use my pension pot to enjoy my retirement without straying into the 40% income tax band.


Mark's idea

I’m going to take income as and when I want, making sure I don’t pay extra tax. I’m happy to leave my pension pot invested with growth potential as I have my savings to fall back on.


What Mark does

  1. Mark leaves his pension pot invested, which allows him to withdraw money as and when he wants

  2. Each time he makes a withdrawal, the first 25% of any sum is tax-free and the remaining 75% is subject to income tax

  3. Mark can take up to £17,072 in this tax year (£4,268 tax-free and £12,804 taxable) from his pot before entering the higher rate tax band


What Mark gets

Pension pot £60,000 which remains invested
Tax-free cash 25% of each withdrawal
Taxable lump sum 75% of each withdrawal

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£60,000
  • Other income£25,000 a year
  • Other savings£25,000
  • Rental cost£9,500

Mark's calculation - Tax band

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 £25,000 a year
Remaining basic rate tax band £12,804 a year

Withdrawal amount

Maximum withdrawal in basic rate tax band £17,072
Tax free part (25%) £4,268
Taxable part (75%) £12,804

Important things to consider

  • Mark is able to make withdrawals from his pot as and when he wants to whilst also managing the tax impact

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

  • Depending on investment performance, the value of his pot may rise or fall and is not guaranteed

  • If Mark takes £17,072 each year from his pot, it will be exhausted in just under four years (assuming no investment returns)

  • If Mark dies before age 75, his daughter, as named beneficiary, will inherit the remaining money, free of inheritance and income tax

  • If he dies after age 75, any income his daughter takes from the pension pot will be subject to income tax

  • Not all products from all providers offer this flexibility, and 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 your 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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