🟣🟢 A Jeremy Clarkson moment

Happy Sunday…👋

Jeremy Clarkson was asked in The Sunday Times this morning whether he’ll ever retire. His answer?

“I’d just be an alcoholic if I stopped working. What else would I do?”

Typical Clarkson. Blunt, a bit dramatic, but there’s something in it that rings true. Especially for business owners.

When people ask me whether I plan to retire, I often give a similar answer (though without the alcohol reference). The idea of stopping work completely doesn’t always sit comfortably particularly when your work has been a big part of your life.

Retirement used to mean just that: stop work, full stop. But that link’s starting to loosen.

You might have heard of the FIRE movement ‘Financial Independence, Retire Early’ which has become popular with Gen X and Millennials. Despite the name, many people involved in FIRE don’t actually want to stop working. What they’re aiming for is freedom, the ability to choose what they do, when they do it, and whether they earn from it or not.

That’s something most of us can get behind.

And if we agree that building a ‘freedom fund’ gives you options and you’re using the tax breaks and investing into a pension, then it’s worth knowing what those options look like when you reach the point where you might want to start drawing from it.

Of course, you might be reading this thinking, “Actually, I do want to stop working, and soon.” Fair enough.

Either way, knowing how pensions work once you’re 55 or over can really help with planning the next stage.

So here’s a quick rundown of what’s possible, what’s changed recently, and what to watch out for.

You can take money from your pension from age 55 (rising to 57 from 2028)

That doesn’t mean you have to but you can. Some people take a small amount to top up income, others take a lump sum to pay off debt or fund life changes. And many more leave their pot untouched so it can keep growing tax-free in the background.

What’s right depends on your wider financial position, what else you’re drawing from, what you want to happen next, and what your business is still providing.

The 25% tax-free lump sum doesn’t have to come out all in one go

This is something I’m often asked about.

You can still take 25% of your pension pot tax-free. But it doesn’t have to be a one-off lump sum.

If you prefer, you can take smaller withdrawals over time and 25% of each one will be tax-free, the rest (75% of the fund) is taxable.

Many of my clients leave the taxable part of their fund untouched and just take what is effectively tax free income until it’s all used up.

For example you could draw £1,000 per month which over the year will mean you’ve unlocked a total of £48,000 of your pension fund (taking £12,000 tax free cash and £36,000 left for pension later on).

Watch out you don’t get pushed into a higher rate tax band

If you take taxable pension out while still drawing dividends, salary or rental income, it can easily tip you into the next tax band. This often happens without people realising.

It’s one of the big reasons why timing and amounts matter especially if you’re still working or drawing income from your business.

Taking income can restrict what you can pay in later

Once you start taking taxable income from your pension (not just the tax-free part), your annual pension contribution limit drops from £60,000 to just £10,000.

This is called the Money Purchase Annual Allowance (MPAA).

It doesn’t apply if you just take your tax free lump sum either as one amount or as regular ‘income’.

But it’s important if you’re planning to continue making personal or pension contributions from the business.

Your pension stays invested, so it can go up and down

Even once you’ve started drawing from your pension, the pot remains invested (unless you move it all to cash or use the fund to purchase an annuity).

That means the value can still fluctuate, depending on markets.

A sustainable withdrawal plan ideally based on your overall goals and other sources of income makes a big difference here. So you need to think about an appropriate ongoing investment strategy.

Recent change: Pension death benefits

Now, if you die before age 75, your pension can usually be passed on completely tax-free. On death after age 75 your beneficiaries will pay income tax on any benefits they draw.

But in the last Budget, the government announced that’s changing from April 2027.

The final rules are still not published, but labour have said that pension funds will be included in your estate for inheritance tax purposes. The IHT will be calculated as a percentage of the total estate and paid by the pension fund.

That said, pensions are still a highly tax effective way to accumulate a retirement fund.

It just means you might be better spending the money with your family whilst you’re alive rather than leaving it to them after you’ve gone!

In summary…

Pensions aren’t just savings vehicles for the distant future. Once you’re in your mid-50s, they become a powerful tool for income, tax planning, and even intergenerational wealth transfer.

If you’ve got one or more old pension pots and aren’t sure how (or whether) they fit into your plans for the next few years, let’s have a chat.

It’s not about doing everything at once. It’s about understanding your options and having a plan that works for you.

😎 THAT’S IT FOR THIS WEEK!

If you need any help with your financial stuff, would like to know more about our services, or have any questions at all, do ping me a reply.

Hilary 😎

📞 Ready to take a step toward financial independence from your business?
Book a Discovery call and find out if we can help you. No pressure, just a chat about where you are now and where you’d like to be. Maybe I can help.

🚀 If you know someone who would appreciate this newsletter, send them this link» https://financial-stuff-by-hilary.beehiiv.com/subscribe

📽️ Check out my Youtube channel for short videos that you might enjoy and find useful! Subscribe for regular updates! Or send me a question you’d like me to answer for you!