Case Study - Should I Draw Pension Income Before I Stop Working?

A new client approached me recently with the above question. He had been self employed for most of his working life and had just over £50k in his personal pension. The client was 61 and his wife 59.

Two questions sprung to mind.

Does he need either the income now or any of the tax free cash? This was quickly followed by what else does he have that has a monetary value and what are his retirement plans?

Following an in-depth fact finding exercise the following was established. He and his wife have little else except a small pension for her (£17k), their unknown state pensions and their home, which was valued at £200k with a small mortgage of 12k. Crucially they also had no clear plan of their retirement cash flows or their range of options that they had available to them.

Ideally he would like to pay off his mortgage as the payments are eating away at his cash flow and he is concerned that the interest rates are going to rise. Furthermore he has no need to draw income from his pension funds as they are both still working and plan to continue for as long as possible.

The client has a number of options and needs to satisfy both short and long term requirements.

What was decided?

It was decided that he would take the maximum tax free cash from his pension and pay off his mortgage. The excess amount would be invested into an ISA (Individual Savings Account) - either cash or stocks and shares, which would be dependent upon more thought and a comprehensive risk profile questionnaire.


Despite not requiring it, it was decided he should take the maximum income from his drawdown pension contract allowing 120% of the annuity (annual) income. This would be saved into further ISA's, which would be attainable when they eventually decided to or are forced to retire. Hence, having taken the maximum permitted tax free lump sum from the pension, they were then planning to enjoy a further accessible tax free benefit.

Ultimately the clients' strategy was to maximise accessible money rather than secured long term income. This decision took into account a number of different tax issues, investment risk considerations, state benefit means testing cogitations, life expectancy and more.


Furthermore the clients have resigned themselves to having to sell and downsize their home at some point to support their finances. The above strategy means that this decision will come later, rather than earlier in their retirement and that they will have money to enjoy some luxuries in their lives when they can appreciate them more.


The above is a brief summary of a real case at Reeves Independent. However each client we deal with is unique and has different priorities and objectives to consider when deciding on their retirement plan. To speak to one of our experienced advisors about our specialist retirement planning service contact us on 0871 271 1280 or e-mail info@reevesifa.com with any questions.