Pension & retirement
Mervyn Casserly
For many people approaching retirement, one of the most common questions is: “Will what I’ve saved actually be enough?”
A £250,000 pension pot may not sound like a life changing sum, but with careful planning it can go further than many expect.
The key isn’t just the size of the pot, but how it’s used, how income is taken, and how it fits alongside other retirement income such as the State Pension.
Under current pension rules, unless there are any previously protections most people can usually take up to 25% of their pension as tax‑free. This is called the pension commencement lump sum (PCLS).
For a £250,000 pot, that means:
How the remaining pension is used will largely determine the level of income, flexibility, and certainty available throughout retirement.
Being able to take up to 25% of a pension as tax‑free cash is one of the most well‑known benefits and features of pensions.
However, deciding whether to take the full amount and when isn’t straightforward.
I often speak with people approaching retirement who assume they should automatically take the maximum tax‑free lump sum simply because it’s available.
Whether this is the right decision depends on what the money will be used for and how it fits into the wider retirement plan.
For some, taking tax‑free cash can serve a very clear purpose. This might include:
There are also situations where taking the full tax‑free amount may be less beneficial.
Leaving funds invested within a pension can allow them to continue growing in a tax‑efficient environment, potentially increasing the long‑term income the pension can provide.
For others, it may make sense to delay taking tax‑free cash, accessing it gradually over time or using it later in retirement when income needs change.
Tax is also an important consideration. While the lump sum itself is tax‑free, removing money from a pension reduces the amount available to generate future income and can affect how remaining withdrawals are taxed in later years.
The question isn’t just “how much can I take tax‑free?” but “what role will this money play?”
The timing and use of tax‑free cash should align with long‑term objectives rather than being seen as a default decision.
One option is to convert some or all of the pension into an annuity, which provides a guaranteed income for life.
At current rates, a healthy 65‑year‑old purchasing a single‑life, level annuity could receive around £14,000+ per year from the remaining £187,500 pension pot.
The final income depends on several important choices:
Annuities can provide reassurance and simplicity, but once purchased they offer limited flexibility and cannot be changed later.
Another approach is flexi access drawdown, where pension funds remain invested and income is taken as needed.
A commonly used planning assumption is a 4% withdrawal rate. Using this as an illustration:
The intention of this approach is to allow the pension to continue growing while supporting income over the long term, often planned for 30 years or more.
The ‘4% option’ isn’t a rule or guarantee. Outcomes are influenced by:
Drawdown offers flexibility and potential growth, but also exposes retirees to investment risk and requires regular ongoing reviews.
Many choose a blended approach, combining the strengths of both methods.
For example:
This strategy can help balance peace of mind with adaptability, particularly as spending needs often change throughout retirement.
The Retirement Living Standards are widely used as a national benchmark to help people understand what different lifestyles in retirement may cost.
They are based on independent research carried out by the Centre for Research in Social Policy at Loughborough University, involving detailed discussions with members of the public across the UK.
These figures represent estimated spending, not income, and they assume retirees own their home outright with no mortgage or rent to pay.
| Lifestyle level | Single person | Couple |
| Minimum | £13,400 a year | £21,600 a year |
| Moderate | £31,700 a year | £43,900 a year |
| Comfortable | £43,900 a year | £60,600 a year |
A £250,000 pension, when combined with the State Pension, can often support a minimum lifestyle.
Achieving a moderate or comfortable lifestyle usually requires additional pensions, savings, or other sources of income.
Two people with identical pension pots can have very different retirement outcomes.
The key factors in retirement outcomes include:
As an Independent financial adviser, I speak with many people as they approach retirement, and one common theme is how long they expect their savings to last.
With people now living well into their 90s and often beyond, retirement planning increasingly needs to account for three decades or more of income.
Flexibility, sustainability and tax efficiency therefore become just as important as the size of the pension pot itself.
A £250,000 pension pot should not be viewed in isolation. When combined with the State Pension and structured appropriately, it can play a vital role in supporting a secure retirement.
Understanding the options and how they align with personal circumstances is essential.
Pension and tax rules can change, and there are risks with every approach, which is why personalised financial advice is so valuable when approaching all retirement decisions.
For advice on how to approach your retirement, get in touch with one of our team today.
Disclaimer: This article is for informational purposes only and does not constitute financial, tax, or legal advice. Tax treatment depends on individual circumstances and may change. The value of investments can go down as well as up and you may not get back the full amount you invested. Past performance is also not a reliable indicator of future performance. Always seek professional advice before making financial decisions.
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A £250,000 pension pot can support retirement when combined with the State Pension, particularly for those targeting a minimum lifestyle.
Achieving a moderate or comfortable lifestyle usually requires additional income from other pensions, savings or investments.
Most people can usually take up to 25% of their pension tax-free.
From a £250,000 pension pot, this would equate to £62,500, with the remaining £187,500 staying invested to provide retirement income.
Not necessarily. While taking the full tax-free lump sum can be useful for clearing debt or funding large expenses, leaving money invested in a pension may provide greater long-term income and tax efficiency.
The right decision depends on your overall retirement plan.
Income depends on how the pension is used.
An annuity could currently provide around £14,000 per year from £187,500, while drawdown might initially support around £7,500 per year based on a 4% withdrawal assumption.
These figures are illustrative and not guaranteed.
Drawdown carries investment risk, as income depends on market performance and withdrawals.
An annuity provides certainty and guaranteed income for life but offers less flexibility.
Many retirees use a combination of both to balance security and flexibility.
With careful planning, a £250,000 pension can last 30 years or more, particularly when combined with the State Pension.
Longevity, spending levels, investment returns, inflation and tax all play a role in determining sustainability.
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