Take stock of your pensions and savings together
It’s rare for people to approach retirement with one single pot of money. You might have:
- One or more workplace pensions
- Personal pensions
- Individual Savings Accounts (ISAs)
- General investment accounts (GIAs)
- Lifetime ISAs (LISAs)
- Cash savings
- Old investments scattered across providers
Each has different rules and tax treatments.
Recent changes – including the anticipated application of inheritance tax on pensions from April 2027 – highlight just how important ongoing advice is. A financial planner can help consolidate and organise your assets, stay alert to new tax rules and legislative changes, and adjust your strategy as life evolves.
Accessing the right income sources in the right order
Drawing income strategically could help to reduce the amount of tax you pay. For example:
- Pensions usually benefit from 25% tax‑free cash, with the remainder taxed as income at your marginal tax rate.
- Individual Savings Accounts (ISAs) provide tax‑free withdrawals, making them useful for topping up income without increasing your tax band.
- Lifetime Individual Savings Accounts (LISAs), if not used to purchase a property, can be used for tax-free retirement savings from the age of 60. You can open this type of account between the ages of 18 and 39, and you can contribute £4,000 a year until you turn 50. There may be changes to this product in the future, including the removal of the retirement option, so do take professional advice if you’re unsure.
- General investments may produce capital gains, which are subject to capital gains tax and are taxed at your marginal income tax rate.
A carefully planned withdrawal order could reduce your lifetime tax bill. A financial planner can work with you to determine the best way to structure your withdrawals.
Managing income tax bands
The level of your taxable income determines what rate of tax you pay. A financial planner can help you:
- Avoid unnecessary higher‑rate tax.
- Use your personal allowance and starting-rate bands efficiently.
- Smooth income across tax years, especially if taking phased pension withdrawals.
- Use your partner’s allowances if appropriate.
Small adjustments today could make a meaningful difference by compounding your future wealth in retirement.
Making the most of tax allowances
Key allowances to consider include:
- ISA allowance – £20,000 per tax year.
- Capital Gains Tax (CGT) annual exempt amount – £3,000 for the current tax year.
- Dividend allowance – £500 for the current tax year.
- Personal allowance - £12,570 for the current tax year.
- Marriage allowance (in some cases) – this allows someone earning less than £12,570. to transfer up to £1,260 to their spouse, potentially saving up to £252 in tax.
- Pension annual allowance (especially if you continue working) – £60,000 for the current tax year. This allows you to contribute up to £60,000 of your salary to your pension.
Optimising allowances before and during retirement helps preserve your long-term wealth.
Planning around the state pension
The state pension can be a cornerstone of retirement income for many. Deciding when to take it affects the income you’ll receive and how it fits into your wider tax picture. State pension age is currently 66 years old, rising incrementally to 67 from April 2026.
If you delay claiming your UK state pension, your weekly payments increase to reflect this. Under current rules, your pension grows by about 5.8% for each full year you defer.
You don’t need to take any action to defer. If you reach State Pension age and don’t claim, the uplift starts automatically. When you later decide to claim, the higher weekly amount is added to your regular payments.
When deferring may help
- You’re still earning and want to avoid a higher tax band
- You expect to pay less tax in future
- You don’t need the pension for essential expenses right now
Things to think about
- Whether you benefit overall will depend on how many years you live after receiving your pension
- The uplift is not compounded
- Deferring can affect entitlement to means‑tested benefits
- If you pass away before claiming, the uplift may not be paid to your estate
Estate and inheritance tax (IHT) planning
With potential future changes to tax treatment of pensions, reviewing your estate plan is increasingly important. Strategies may include:
- Making regular or one‑off gifts.
- Using pensions earlier in retirement to preserve IHT‑efficient assets post-April 2027.
- Considering life insurance in trust.
- Structuring ownership of assets between spouses and civil partners.
Thoughtful planning ensures your wealth goes where you want it to, and a financial planner can support you with this.
Ready to review your tax-efficiency?
If you are in or approaching retirement and would like expert support to improve your tax‑efficient income planning, please speak to your usual Rathbones contact or get in touch by filling out our form below. We’re here to help.
