How we helped Yousuf maximise his potential

Yousuf is 65.

He has a defined benefit (DB) pension (promising a set level of pension based on salary and how long he built up benefits) and State Pension. Together these pay around £20,000 a year.

 

He also has a defined contribution (DC) pension pot, based on contributions and investments, of around £60,000.

He wants to take the whole £60,000 as cash to use for things like holidays and entertainment.

Our financial planner recommends Yousuf could spread his cash over two tax years by taking half of it in March near the end of the tax year (on 5 April) and the rest after the start of the new tax year (on 6 April). This means he doesn’t go into a higher tax bracket, reducing his tax bill by £3,000. Here’s how it would work.

Yousuf can take tax-free cash of £15,000. £7,500 in year 1 and £7,500 in year 2. 

He pays tax on the remaining £45,000. £22,500 in year 1 and £22,500 in year 2 (both at 20% basic rate).

So his total tax bill is £9,000.

And his total cash, including the tax-free amount, is £51,000.

Tax rates and bands based on 2021/22 and 2022/23 tax year.