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I’m using my pension towards buying our first home.

Nalini, 66, has final salary pension income of £6,000 per year, receives her full State Pension and has a defined contribution pension pot of £36,000. Her husband has final salary pension income of £20,000 per year. They’re currently renting and have £45,000 in savings.


What Nalini wants

We’ve always rented and are finally in a position to buy our own home with the help of my pension pot and savings.

Nalini's idea

Given that I’m a basic rate tax payer, taking my pension pot in one go feels like the right thing for me to do. It will make a big contribution towards buying our first home.

What Nalini does

  1. Nalini takes one quarter of her pension pot as a tax-free cash sum of £9,000

  2. She takes the remaining £27,000 as a taxable lump sum

  3. As her other income puts her in the basic rate tax band, she pays £5,400 tax on the lump sum and receives £21,600

  4. In total Nalini receives £30,600 which she uses towards buying the house

What Nalini gets

Tax-free cash £9,000
Taxable lump sum £27,000 (£5,400 tax leaving £21,600)
Total £30,600

See how we worked this out

  • State Pension age65
  • State Pension£8,767
  • Pension pot£36,000
  • Other income£6,000 a year
  • Other savings£45,000
  • Property price£95,000

Nalini'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 £6,000 a year
Total regular income (subject to tax) £14,767 a year
Lump sum (taxed at 20%) £27,000

Important things to consider

  • As Nalini was already in the 20% tax band due to her income, she paid tax at that rate

  • Once Nalini has spent all of the money she received from her pension pot, she’ll have to rely on her and her husband’s final salary pensions and their State Pension, unless she has any other assets she can use to give her an income or is able to claim any state benefits

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

  • If she had left it invested, she would have also had the risk that it could fall

  • 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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