Wealth of Advice, Swale House, Mandale Business Park, Durham, DH1 1TH
This episode brings our Pension Basics miniseries to a close. Over the last few episodes, we’ve covered defined contribution (DC) pensions, defined benefit (DB) pensions, annuities and the State Pension — mostly in isolation.
In this final instalment, Matthew and Joe bring everything together using real world case studies, showing how these different pension types interact in practice. Most people don’t retire with just one pension — they retire with a mix — and it’s the structure, timing and tax treatment of income that often makes the biggest difference.
Nothing discussed here is personal advice. There’s no single “right” answer. The aim is to help you recognise planning issues that might be relevant to your own situation.
We also mention a bonus episode coming this Thursday, recorded live at the Wealth of Advice Annual Client Conference, where we’ll be exploring the value of financial advice and answering questions in a live Q&A. After that, our next miniseries will focus on investments.
Pensions sit on a wide spectrum of flexibility:
Flexi-access drawdown DC pensions — highly flexible, but with tax traps
DC pensions with specific rules (such as small pots)
Defined benefit pensions — guaranteed, inflation linked, but inflexible
Annuities — certainty and simplicity, but no flexibility
Most retirees will have more than one of these, and the key question becomes:
Which pension do you use first, how much do you take, and what does that decision restrict later on?
The following five case studies illustrate how different combinations lead to very different outcomes.
Mark’s instinct is understandable. Taking money from a small pension can feel easier than increasing salary or dividends — especially given the tax implications of extracting money from a company.
However, how he accesses those pensions is critical.
If Mark takes any taxable income from a DC pension, he risks triggering the Money Purchase Annual Allowance (MPAA), reducing his future pension contribution limit from £60,000 to £10,000 per year.
For someone actively contributing £30,000 — and potentially more in future years — that restriction could be hugely damaging.
For Mark, a single poorly structured withdrawal could permanently restrict future pension funding.
Takeaway: At higher pension values, how you access pensions matters just as much as when.
Sarah’s retirement is affordable — the question is how to structure income.
Taking the DB pension early provides immediate certainty but permanently reduces inflation linked income. Delaying preserves long term guaranteed income but requires bridging the gap using DC pensions.
Taking the DB pension early provides ~£76,500 of income before age 60
Sarah is still ~£40,500 better off by State Pension age
The “crossover age” where delaying becomes better is around age 76
For Sarah, retiring early is affordable — the real question is whether locking in a reduced DB pension for life is the right trade off.
For many people, the focus is on the early “golden years” of retirement, not maximising income in their late 70s and beyond — but the decision is deeply personal.
AVCs can be one of the most powerful — and misunderstood — tools within DB schemes.
Depending on scheme rules, AVCs can often be used to:
AVCs can dramatically improve retirement structure if used properly.
Helen doesn’t want sleepless nights worrying about markets — but also doesn’t want to give up flexibility entirely.
£200,000 used to purchase an annuity at ~6.5%
Provides ~£13,000 p.a. guaranteed income
Remaining £200,000 left invested in drawdown
Annuities don’t replace drawdown — they can support it.
Partial annuitisation can improve security without sacrificing flexibility.
John (65) and Emma (63)
John:
Emma:
This is a classic example of why pension planning works best at a household level, not individually.
Emma, with no other income before State Pension age, has significant scope to draw pension income very tax efficiently. John, with guaranteed income already in payment, faces different constraints.
At higher asset levels, tax and household coordination drive outcomes more than investment returns.
If you currently have 30 qualifying years, your State Pension would be roughly:
~£197 per week (around £10,244 p.a.)
Topping up to 35 years could increase this to:
~£230 per week (around £11,973 p.a.)
That’s around £1,700 extra per year, for a cost of roughly £4,500.
Payback period: around 2.5–3 years — after that, it’s inflation linked income for life.
It’s also worth checking for partial years, which can often be topped up at a lower cost.
This episode highlights a core truth of retirement planning:
The case studies show that outcomes are driven by structure, timing and personal priorities — not just investment returns.
Bonus live episode this Thursday from our Annual Client Conference
Next miniseries: Investments — risk, diversification and income strategies
If you found this helpful, please subscribe, leave a review, and send in your questions to retirewell@wealthofadvice.co.uk.
If you want a better view of what your future could be, we'll have a chat and work out if we make a good fit for you and your financial picture.
Wealth of Advice are authorised and regulated by the Financial Conduct Authority, reference number 563909. This website is for information purposes only and is not personal advice.
We are committed to providing products and service of the very highest standards. If you feel that we haven't lived up to your expectations in any way, however, we would like to know so we can put things right for you. If you have a complaint, make sure you contact us directly. Accordingly, we will do all we can to resolve your complaint by the end of the next business day. However, if we can't do this, we will write to you within five working days to tell you what we have done to resolve the problem, or acknowledge your complaint and let you know when you can expect a full response. Furthermore, if we haven't issued our response within eight weeks from the date you first raised your complaint, or if you're dissatisfied with our response, you can ask the Financial Ombudsman Service - www.financial-ombudsman.org.uk - for an independent review. The Financial Ombudsman Service will only consider your complaint once you've tried to resolve it with us, so please take up your concerns with us first and we'll do all we can to help.
Wealth of Advice Ltd is a company registered in England and Wales, company number 07709624.
VAT Number: GB131946515