A practical retirement income plan combines: the State Pension (£241.30/week in 2026/27, based on 35 qualifying NI years); workplace and personal pensions (accessible from age 57, with 25% tax-free); and ISA savings (accessible anytime, tax-free). Coordinate these to minimise tax: pension withdrawals above the tax-free cash are taxable income, so managing how much you take each year relative to the Personal Allowance (£12,570) reduces the overall tax bill. Free Pension Wise appointments are available for anyone over 50 with a DC pension.
Retirement income planning isn't a single calculation — it's the coordination of several different income sources, each with different tax treatment, different access rules, and different flexibility. Getting the timing and sequencing right can make a meaningful difference to total tax paid and income available throughout retirement.
The Three Main Income Sources
State Pension
The full new State Pension is £241.30/week (£12,547/year) for 2026/27 — paid to anyone who has reached State Pension age (currently 66, rising to 67 by 2028) with 35+ qualifying NI years. It's increased annually under the triple lock (highest of CPI inflation, average earnings growth, or 2.5%).
Check your forecast at gov.uk/check-state-pension. Gaps can sometimes be filled with voluntary NI contributions before pension age. The State Pension is taxable income (though most pensioners' other income is low enough that it falls within the Personal Allowance).
Workplace and Personal Pensions
DC pension pots provide the bulk of most people's retirement income beyond the State Pension. From age 57, you can:
- Take 25% as a tax-free lump sum (up to the £268,275 Lump Sum Allowance)
- Draw the remaining 75% as income — taxable at your marginal rate when withdrawn
The order and timing of withdrawals matters. Each year's withdrawals are added to other taxable income (including State Pension). Managing annual withdrawal amounts to stay within the basic-rate band — or even the Personal Allowance — significantly reduces lifetime tax.
ISA Savings
ISA withdrawals are completely tax-free and invisible to HMRC — they don't count as income for any purpose. This makes ISAs extremely valuable as a flexible supplement in retirement: you can draw from your ISA in years where pension withdrawals would push you into a higher tax band, keeping total taxable income lower.
Coordinating the Sources: A Framework
A practical approach to retirement income sequencing:
- Understand your State Pension amount and when it starts
- Calculate how much pension income (after 25% tax-free cash) you'd need to supplement State Pension to reach your target income
- Use ISA withdrawals for top-ups in years where pension income would push you above the basic-rate threshold
- Consider drawdown for flexible income (portfolio stays invested; withdrawals can be varied year to year)
- Consider annuity for floor income (guarantee the basics are covered regardless of market performance)
Our detailed guide on drawdown vs annuity compares the two approaches in detail, including how current high annuity rates affect the decision.
Frequently Asked Questions
When should I start drawing my pension?
From age 57 (2028 onwards). The right time depends on your income needs, tax position, and other resources. Deferring pension access while continuing to invest allows the pot to grow further. Drawing early reduces the pot's remaining growth but provides earlier income.
Is pension income taxed?
Yes — pension withdrawals above the 25% tax-free cash are added to your other income and taxed at your marginal rate. Coordinate withdrawals with other income (State Pension, ISA, part-time earnings) to manage your annual tax position effectively.
For a free, impartial Pension Wise appointment (available to all over-50s with a DC pension), visit MoneyHelper's Pension Wise service.
