Pension & Retirement FAQs – Your Questions Answered

As we wrap up the final Retire Well with Wealth of Advice episode of 2025, Matthew and Joe took the opportunity to answer some of the most common (and thoughtful) questions we’ve received over the year.

Unsurprisingly, many of them centre around pensions, tax efficiency, and how retirement works in practice rather than theory. Below, we’ve pulled together the key questions and answers in a clear Q&A format.

‍

Is it more tax-efficient to take a pension under £10,000 using the small pots rule, or via drawdown/UFPLS?

From a pure tax perspective, spreading withdrawals over multiple tax years can be marginally more efficient. However, the bigger issue is what happens next.

If you access a small pension via UFPLS or flexi-access drawdown, you’ll trigger the Money Purchase Annual Allowance (MPAA), potentially limiting future pension contributions to £10,000 a year. The small pots rule avoids this.

So the key questions are:

• Do you expect to work and contribute to pensions again?
• Are you prioritising flexibility or simplicity?
• Is this part of a wider plan, or just “tidying up”?

For many people, the tax difference is minimal. What matters more is avoiding accidental restrictions and unnecessary complexity.

Don’t let the tax tail wag the investment dog.

‍

Could I take £100,000 a year via UFPLS forever if my pension keeps growing by £100,000 each year?

From a sustainability of fund perspective, this could work. But you would at some point run out of lump sum allowance which causes a taxation issue.  

UFPLS works on a fixed split:

• 25% tax-free (£25,000)
• 75% taxable (£75,000)

But after 10 years you will hit lump sum allowance (£268,275). After that, all withdrawals become taxable.

More importantly, this question often reflects a deeper concern:

“I don’t want my pension pot to go down.”

Retirement planning isn’t about keeping the number static – it’s about funding your life. Markets don’t rise every year, and spending is the point of the pension.

With pensions becoming part of the IHT estate from 2027, “never touching the capital” is also becoming less effective as a strategy.

‍

How does flexi-access drawdown actually work in real life?

It depends heavily on the provider.

Some pensions show:

• One combined pot with remaining tax-free cash listed separately

Others show:

• A pre-retirement (uncrystallised) pot
• A post-retirement (crystallised) pot

Practical issues people often overlook:

• Which funds are sold to pay income?
• Are payments monthly, ad hoc, or manual each time?
• Can you hold a cash or money-market “income pot” inside the pension?

This is where pensions that look cheap and well-invested can still fall down in retirement if the admin is clunky or inflexible.

‍

Can I use one pension for income and leave my others untouched?

Yes – While technically possible, running multiple pensions in retirement means:

• Multiple PAYE sources
• Higher admin
• Greater risk of tax issues
• Different payment dates and processes

It also complicates tax-free cash planning. You may run out in one pension while it still exists in another.

In most cases, consolidating into one flexible retirement pension simplifies income planning and can even reduce charges due to tiered pricing.

Defined benefit pensions are the obvious exception – these often sit alongside a single drawdown pot.

‍

Can I take taxable income up to the personal allowance without taking tax-free cash?

Not unless the pension has already been crystallised.

For every £3 of taxable income, £1 of tax-free cash must be released. You can’t access taxable income in isolation from an untouched pension.

Where this can work well is if you:

• Crystallise a large amount at retirement
• Take a lump sum upfront
• Then use the crystallised pot to draw taxable income up to the personal allowance later

‍

I’ve sold a property and have £60,000 cash – can I put this into a pension?

Only if you have sufficient UK relevant earnings.

If you’re retired and don’t:

• You’re limited to £3,600 gross (£2,880 net) per year

Other options to consider:

• ISAs (£20,000 per tax year)
• Investment bonds (no earnings limit)
• General Investment Account

‍

What happens to my pension if I die before age 75?

For defined contribution pensions:

• Pre-75: beneficiaries can take the pension tax-free
• Post-75: withdrawals taxed at the beneficiary’s marginal rate

Defined benefit pensions are different – income paid to beneficiaries is usually taxable regardless of age at death.

From April 2027, pensions will also form part of the IHT estate, but the income tax rules above will still apply after any IHT is settled.

‍

Should I earn less or stop working to access an inherited pension at a lower tax rate?

Tax alone is the wrong driver.

Better questions are:

• Do you enjoy your work?
• Do you actually need the income?
• Can the pension stay untouched and grow?

In many cases:

• Beneficiary drawdown allows income to be deferred
• Intergenerational planning may mean redirecting benefits to children or grandchildren
• Phased retirement (fewer days, lower income) can strike a better balance

Again: don’t let tax drive life decisions in isolation.

‍

Final Thoughts

This episode – and these questions – highlight a recurring theme:

Retirement planning is as much behavioural and practical as it is technical.

Understanding how pensions work in theory is one thing. Making them work smoothly in real life is another.

If you’d like help making sense of your own situation, or you’d like us to cover a specific scenario in a future Q&A episode, you’re always welcome to get in touch.

‍