You’ve spent years building your retirement savings. And, when the time comes to draw an income, the order in which you access your pensions, ISAs, and other investments could make a significant difference to the tax you pay.
Drawing too much from one source could push you into a higher tax bracket. Taking a more considered approach may help you manage your tax liability and preserve financial flexibility.
Here’s why the way you take your retirement income is just as important as the amount you’ve saved.
Why the way you withdraw your pension matters
Imagine you want to draw a retirement income of £48,000 next year, on top of your State Pension.
You decide to draw the entire amount straight from your private pension fund.
Let’s also assume that you’ve already used your tax-free lump sum, which is usually 25% of your pot, or a maximum of £268,275.
Beyond this tax-free amount, withdrawals are generally subject to Income Tax. The amount you pay depends on your total taxable income, including your State Pension, and your available allowances.
As such, withdrawing £48,000 from your pension in one go could push you into a higher tax bracket.
Since the full new State Pension in 2026/27 is £12,547.60, and almost as much as your total Personal Allowance, this is more important than ever.
The table below shows the Income Tax brackets for 2026/27:
| Band | Taxable income | Tax rate |
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | over £125,140 | 45% |
Withdrawing £48,000 as taxable pension income could cost you £11,651 in Income Tax. So, to get the full £48,000 into your bank account, you’d have to withdraw £59,651.
Assuming you’ve not used any of your annual Personal Allowance, here’s how it breaks down:
| Income | Amount |
| State Pension | £12,547.60 |
| Private pension withdrawal | £48,000 |
| Total taxable income | £60,547.60 |
| Personal Allowance | £12,570 |
| Income taxed at 20% | £37,700 |
| Income taxed at 40% | £10,277.60 |
| Total Income Tax | £11,651.04 |
Watch: How income optimisation works
A tax-efficient approach could help your retirement savings last longer
To optimise your income in retirement, you need to take a holistic view of your accumulated wealth.
With a diverse portfolio, you can take advantage of multiple tax-efficient strategies, including:
- Personal private pensions, which offer up to 25% tax-free cash when you begin to draw down
- ISAs, which are completely free from Income Tax, Dividend Tax, and Capital Gains Tax
- Business assets and property, though these can still attract a tax bill.
Read more: Why it’s sensible to spread the risk and diversify your investments
Withdrawing a portion of wealth from different assets allows you to take your desired income without triggering an unnecessarily high tax bill.
We can review all your existing pensions, savings, and investments and work with you to create a tailor-made, tax-efficient plan to make the most of your accumulated wealth.
A tailored plan could save you thousands in tax
Returning to the earlier example, instead of paying thousands in tax on withdrawing £48,000 from your pension, a tailored plan could deliver the same amount – with a smaller tax bill.
For instance, drawing £10,000 from your ISA and £38,000 from your pension could reduce the amount of income subject to higher-rate tax.
And the benefits of this approach don’t stop after year one.
By drawing tax-efficiently from different sources, you could reduce the amount lost to tax, potentially leaving more of your retirement savings invested and available for future growth.
What to consider when reviewing your retirement income strategy
These days, retirement can last up to 30 or even 40 years.
Over time, your circumstances and priorities may change. So, it’s important to regularly review how you’re drawing your income. Doing so can help ensure your strategy continues to meet your needs, both now and in the future.
When reviewing your plan, as well as revisiting your tax position, take time to consider:
- Whether withdrawals from your investments and pension savings remain appropriate
- Whether your income is still sufficient to support your desired lifestyle
- How prepared you are for unexpected expenses or changes in circumstances
- How inflation may affect your spending power over time.
As life evolves, regular reviews with your Financial Planner can help you adapt your strategy, giving you peace of mind that your retirement income remains appropriate and will provide the security you need for the future.
Your Financial Planner can help you enjoy a more tax-efficient retirement
There’s no one-size-fits-all approach to drawing an income, but we’re here to help ensure you enjoy the retirement you deserve.
Together, we can review your accounts and plan your withdrawals strategically.
If you’re approaching retirement or already drawing an income, it may be worth reviewing how your pensions, ISAs, and other investments work together.
Your Financial Planner can help you understand your options and whether your current approach remains appropriate for your circumstances.
Please note
The information contained in this article is based on the opinion of Titan Wealth Planning and does not constitute financial advice or a recommendation for any investment or retirement strategy.
This article is for information purposes only and does not constitute personal financial advice. If you are unsure about whether a particular course of action is suitable for you, we recommend that you seek independent financial advice.
The value of investments and the income from them can fall as well as rise, and you may get back less than you originally invested. Past performance is not a reliable indicator of future performance.
Tax treatment depends on individual circumstances and may be subject to change in the future. Tax and estate planning outcomes are not guaranteed.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The Financial Conduct Authority does not regulate tax planning.
Titan Wealth Planning Ltd is authorised and regulated by the Financial Conduct Authority (FCA reference number: 574458). Registered address: 101 Wigmore Street, London, W1U 1QU, United Kingdom.
