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I’m going to take money from my pension when I need it.

Anne, 65, used to work for a multinational company. She owns her home outright and receives her full State Pension. She has a defined contribution pension pot of £800,000 and has £400,000 in savings and investments.


What Anne wants

I want my pension and savings to fund my retirement, but I’m happy to keep the pension invested and make withdrawals when I need to. I prefer flexibility so I can do what I want.

Anne's idea

I’m going to leave my pot invested so that it has a chance to grow, and it allows me to take income when I need it. I’ll keep an eye on the investment performance and make sure I don’t pay extra tax by only withdrawing what I need.

What Anne does

  1. Anne takes one quarter of her pension pot as a tax-free cash sum of £200,000 and puts the rest into flexi-access drawdown

  2. She can make withdrawals as and when she wants to but these will be subject to income tax

  3. As Anne’s only income is her State Pension, she has £3,733 of her personal allowance unused, so this amount can be withdrawn free of tax. Anything she withdraws over this amount will be subject to tax of at least 20%

  4. The money in her flexi-access drawdown remains invested in the funds that she has chosen, so her money has the potential to grow. Anne regularly reviews her investments to make sure that their performance meets her retirement aims

What Anne gets

Tax-free cash £200,000
Pension pot in flexi-access drawdown £600,000
Maximum tax free withdrawals £3,733

See how we worked this out

  • State Pension age65
  • State Pension£8,767
  • Pension pot£800,000
  • Other incomeNone
  • Other savings£400,000
  • Property value£300,000

Anne'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
Remaining personal allowance £3,733
Annual drawdown taxed at 0% £3,733
Annual drawdown taxed at 20% £37,500 (maximum)

Important things to consider

  • Anne’s pension pot remains invested in the funds she’s chosen - the value can fall as well as rise, and is not guaranteed

  • If the value of the pot falls, any withdrawals Anne makes will exhaust the pot more quickly

  • Anne can pace her withdrawals to manage the amount of income tax she pays

  • By taking income from her flexible drawdown pot Anne will trigger the Money Purchase Annual Allowance. This means the amount of money she can contribute to a money purchase pension scheme, and still receive tax relief, will reduce from £40,000 to £4,000. In addition, as she has allocated all of her pension pot to flexible drawdown, she cannot make any further contributions to this particular pension pot

  • If she dies before age 75, her named beneficiaries will be exempt from income tax on any money they withdraw

  • If she dies after age 75, any income taken from the pot by her named beneficiaries will be subject to income tax at their marginal rate

  • Flexible drawdown may cost more to set up and administer than other retirement income options that are available. Anne should shop around for her retirement income and consider the impact of ongoing charges on her pension income

  • 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 any tax due 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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