United Kingdom · Worked example
Tax-Free Cash and Drawdown: A £300,000 Example
Removing £75,000 from a £300,000 pension leaves £225,000 invested. The cash still belongs to you. A lower drawdown result describes the smaller invested pot, not a loss of the cash or a conclusion about the best tax choice.
Assumptions you can reproduce
Start at age 65 with £300,000 available for drawdown and plan to age 95. The illustrative annual return is 5% before a 0.6% annual percentage fee; inflation is 2.5%. Withdrawals increase once a year with inflation. Other taxable income and State Pension start at £0. The example uses England, Wales and Northern Ireland income-tax bands for 2026/27, held fixed in future years.
The base case removes no upfront cash and treats every drawdown payment as taxable. It does not grant a fresh tax-free percentage on each payment. This is a simplified drawdown model, not phased crystallisation or UFPLS. No later contributions or guaranteed pension product are included.
Keep the cash and the invested pot separate
| Scenario | Upfront cash outside model | Invested at start | First-year net monthly budget |
|---|---|---|---|
| £300,000 stays in taxable drawdown | £0 | £300,000 | £1,031 |
| Remove 25% upfront | £75,000 | £225,000 | £800 |
The upfront scenario assumes the full £75,000 fits within the unused standard allowance supplied to the calculator. Our example uses £268,275 as the remaining allowance; it is an input, not a check of previous withdrawals across your pensions. Protected allowances and scheme-specific rights are excluded.
Why this is not a complete strategy comparison
The first row treats £300,000 as taxable drawdown capital. The second removes the modelled tax-free lump sum and treats the remainder as taxable. Neither row models later phased tax-free withdrawals. If you retain the lump sum in cash or investments, its returns, spending and possible taxes need a separate plan.
Do not add £75,000 back to the pension balance while also counting it as money outside the pension. That would count the same assets twice. Equally, excluding it from every part of your plan would omit assets you still own.
A useful arithmetic cross-check
With no returns, fees or inflation, £225,000 divided by a £1,000 monthly gross withdrawal funds 225 payments: 18 years and 9 months. The £300,000 equivalent funds 300 payments: 25 years. This simple comparison isolates the effect of reducing invested capital; it does not include tax or income from the cash.
Before entering your own figures
Check your remaining lump sum allowance, the amount currently invested, whether cash has already been taken and which withdrawal mechanism your provider offers. If cash was already removed, enter the remaining invested balance and leave the upfront option off. Do not remove the same lump sum twice.
Check the smaller invested pot against higher costs and a longer life
Each row removes the same £75,000 cash at age 65 and starts drawdown with £225,000. The cash remains outside every row. Change one assumption at a time to see what the invested portion alone can support after estimated tax.
| Scenario | Start → end age | First-year annual budget | First-year monthly budget | Try the figures |
|---|---|---|---|---|
| 0.6% fees, plan to 95 | 65 → 95 | £9,604 | £800 | Try: 0.6% fees, plan to 95 |
| 1.1% fees, plan to 95 | 65 → 95 | £9,005 | £750 | Try: 1.1% fees, plan to 95 |
| 0.6% fees, plan to 100 | 65 → 100 | £8,605 | £717 | Try: 0.6% fees, plan to 100 |
These rows still do not compare the total wealth or tax consequences of keeping the lump sum outside a pension. Reconcile that cash separately before comparing whole-retirement strategies.
What this example cannot tell you
Returns arrive smoothly every month in this model. Real markets can fall early in retirement, and the order of returns matters when money is being withdrawn. The calculation does not estimate a probability of success. A budget that exhausts capital near the chosen end age leaves no modelled reserve for living longer, large repairs, care costs or an inheritance.
Try a lower return, higher costs and a longer horizon. Check pension access with your provider and compare essential expenses with reliable income. These are invented educational scenarios, not recommended spending levels or personal financial advice.
This link loads only the invented example above. Your own entries are never added to the link. Figures in the article are rounded to whole currency units; the model calculates with unrounded values.
Sources and review record
The official pages below were checked on for the specific statements described. The numerical scenarios are our calculations, not government forecasts. No independent financial or native-language reviewer has approved this material.
- GOV.UK: Income Tax rates and Personal Allowances — the standard allowance and non-Scottish bands used in these examples.
- GOV.UK: tax-free pension withdrawals — the usual 25% rule and standard lump sum allowance; individual protection can differ.
- GOV.UK: State Pension forecast and State Pension age — obtain your own amount and date.
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