• Titan Wealth Planning has obtained Freedom of Information data revealing the incomes of the country’s top pension earners – and the seven figure individual tax bills they faced
• The 2023-24 figures reveal that a select group of super investors withdrew seven figure sums from their pots, while around 8,000 had pension income of £100,000+
• Estate planners at Titan are warning that High-Net-Worth Individuals (HNWIs) need to carefully consider the type of withdrawals they make to mitigate tax exposure – and preserve a legacy for the next generation

London October 2024 – The UK’s wealthiest retirees paid themselves annual pension income of around £3m each last year but lost almost half of that in tax, according to figures published for the first time today.

Titan Wealth Planning used a Freedom of Information (FOI) request to obtain data from HMRC on taxable flexible pension payments.

According to figures for 2023-24, the largest 25 annual pension incomes averaged £2,982,000, meaning those at the very top of the tree will likely have had pension income in excess of £3m.

[Derek Miles, CEO] of Titan Wealth Planning commented: “Hats off to the investors who built these extraordinary pension pots – but you have to wonder about the advice they received before making these colossal withdrawals.

“Assuming there were no other income streams, someone taking annual pension income today of £3 million would be looking at eye-watering tax and national insurance bills of £1,398,214, leaving them with take-home earnings of £1,601,786. In other words, they would lose almost half their windfall.

“When you’ve spent a lifetime building a retirement super pot, it’s important to protect it by making the right type of withdrawal. A hurried decision could seriously damage your wealth.”

The figures obtained by Titan under FOI rules relate to taxable flexible pension payments received by 1,010,000 individuals. Under flexi access drawdown, pension investors receive 25% of their pot tax-free in one go. The remaining 75% can continue to grow in a drawdown fund. It can be withdrawn as the investor wishes but now counts towards their taxable income.

[Derek Miles] of Titan Wealth Planning added: “There may be perfectly valid reasons why High-Net-Worth Individuals may wish to draw seven figure sums from their pots. Perhaps they wish to invest in a business, buy a yacht to sail around the world, or they may simply want to help their children get a foot on the housing ladder.

“But withdrawing your money in large chunks can dramatically increase your tax liability and ultimately erode what you later pass on to the next generation.

“Under current rules, pensions can usually be passed on free of inheritance tax (IHT) using a nomination form. Beneficiaries either take their share of the pot as a lump sum, or leave it invested in a pension and use it to provide an income when they need it. Inherited pension money can be accessed straight away - the beneficiary doesn’t have to wait until the age of 55. 

“Leaving pension funds to children and grandchildren has become a central pillar of estate planning because of the tax advantages.

“Withdrawing huge sums while you are alive may leave your successors less well off.”

According to the FOI data, there are approximately 8,000 retirees paying themselves £100,000+ from their pension pots annually including around 2,000 earning £200,000+. Approximately 39,000 are withdrawing pension income of £50,000+ annually. The average annual taxable income stood at £15,168.

A pension investor paying themselves £100,000 from a private pot could expect to pay £31,443 in income tax and national insurance contributions - assuming they had no other income streams - while a £50,000 pension income earner would lose £10,480 in take-home pay.

[Derek Miles] of Titan continues: “The tax bill could be even greater depending on whether the individual is also in receipt of the state pension. Private pension income can be accessed from 55 - or 57 from 2028 - while the state pension currently kicks in at 66.

“The £11,502 state pension isn’t taxed at source by the government - because it is below the personal allowance of £12,570 – but it still contributes towards your income, meaning the tax exposure for those receiving both private and state pension income could be even greater. 

“If you’re still receiving employment income while drawing on your private pension, then this too will add to your tax bill.

“Pensions and estate planning are rarely straightforward. The rules are always evolving and there’s never a one-size fits all approach. That’s why it’s never been more important to have the right counsel on your side to offer bespoke advice depending on your situation.”