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William

I want us to be secure in our later years.

William and his wife are both aged 66. He has a defined contribution pension pot of £30,000, receives his full State Pension and also has final salary income of £12,000 per year. They have £20,000 in savings and rent their home.

William

What William wants

We want to enjoy our retirement and know that we won’t run out of money. Our parents are in their late eighties and we hope to have a long retirement as well.


William's idea

We’re going to use my pension pot to buy a secure guaranteed income to make sure we don’t run out of money.


What William does

  1. William takes one quarter of his pension pot as a tax-free cash sum of £7,500

  2. He uses the other £22,500 to purchase a joint life lifetime annuity which will continue to pay the same level of guaranteed income for the rest of his life

  3. William receives an annual income of £975. As he pays basic rate tax, he’ll pay £195 a year tax on this income


What William gets

Tax-free cash £7,500
Lifetime annuity £975 a year, subject to tax

See how we worked this out

  • State Pension age65
  • State Pension£8,546
  • Pension pot£30,000
  • Other income£12,000 a year
  • Other savings£20,000
  • Rental costs£7,200

William'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 £12,000 a year
Total regular income (subject to tax) £20,546 a year
Lifetime annuity (taxed at 20%) £975 a year

Important things to consider

  • William has chosen a fixed income from his lifetime annuity, which won’t increase in value. As a result, the effect of inflation will reduce the buying power of the income over time

  • Better deals may be available so it’s important to shop around

  • If William or his wife lives beyond 23 years of taking out the lifetime annuity, they will receive more money than his pot was originally worth

  • If William or his wife had any medical conditions or lifestyle health risks they could have received a higher income

  • If William or his wife dies early, they may not receive the full value of his pot

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

  • Buying a lifetime annuity is a once and for all decision. Once an annuity is set up and the cancellation period has expired, it can't be changed

  • 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 

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