Flexi-access drawdown

Your sustainable withdrawal rate depends on various factors, but the "4% rule" is a popular reference point. This means withdrawing 4% of your initial pension pot annually, adjusted for inflation, and gives a good chance of your money lasting 30 years. However, this isn't guaranteed and needs regular review. Let's look at an example with a £200,000 pension pot: 4% initial withdrawal = £8,000 per year After 5 years with 2% inflation = £8,835 per year After 10 years = £9,757 per year Your sustainable rate might be higher or lower depending on: Investment performance Life expectancy Market conditions Other income sources Planned legacy goals Some experts now suggest a more conservative 3% rule, particularly in the current low-yield environment. Regular reviews with a financial adviser can help ensure your withdrawal rate remains sustainable.

A good investment strategy remains flexible and evolves through different stages of retirement. In early retirement (50s-60s), you might consider a more growth-oriented approach to help your pension last longer. As you age, gradually reducing risk can be sensible. A typical progression might look like this: Early retirement (ages 55-65): 60% equities 25% bonds 10% property 5% cash Mid retirement (ages 65-75): 50% equities 30% bonds 15% property 5% cash Later retirement (75+): 40% equities 40% bonds 15% property 5% cash This should be personalised based on your risk tolerance, income needs, and other circumstances. Many people adopt a "bucket strategy", keeping 2-3 years of income in cash/low-risk investments while investing the remainder for growth.

Inheritance tax (IHT) is currently only paid by around 4% of estates in the UK. This is because there are several exemptions and allowances that can reduce or eliminate the IHT bill. The key change announced in the October 2024 Budget is that from April 2027, the value of unspent pensions will now be included when calculating the total value of an estate for IHT purposes. This means that pension funds above the IHT threshold will become liable for the 40% IHT charge, unless the pension is inherited by a spouse or civil partner. The existing rules around income tax on inherited pensions will remain. If someone dies before age 75, their nominated beneficiaries can inherit the pension pot tax-free. But if the pension-holder dies at 75 or older, the beneficiaries will have to pay income tax on the inherited pension at their personal tax rate (e.g. 20%, 40% or 45%). In some cases, therefore, both IHT (at 40%) and income tax could be due on an inherited pension, reducing the total amount received by the beneficiaries. Any IHT owed would be deducted at source, so beneficiaries would only receive the post-IHT amount. Overall, these changes will impact estate planning and require careful consideration of pensions when passing on wealth to loved ones.

You can typically take 25% of your pension pot as tax free cash upfront, while leaving the rest invested. The remaining 75% stays in pension drawdown and any withdrawals from this portion count as taxable income in the year you take them. Be aware that first-time withdrawals are often subject to an emergency tax code, which might result in you paying more tax initially than you need to (though you can reclaim this). While your initial cash is paid tax free, subsequent withdrawals are added to any other income you receive that tax year and taxed at your marginal rate. It's worth consulting Pension Wise or a financial adviser about how to manage these withdrawals efficiently. They can help you minimise your tax liability and ensure your pension lasts through retirement.