Pension drawdown calculator

The calculator works a year at a time from the age drawdown starts. Each year it takes the income you want after tax, counts what the State Pension and any other income bring in after their own tax, and draws the rest from your pension, or from your savings if you choose them first. Whatever is left in both pots then grows for the year.

Pension withdrawals are taxed as income on top of the State Pension and any other income, so the calculator solves for the gross withdrawal that leaves the income you asked for once the extra tax is paid. Unless the tax-free cash is taken up front, 25% of each withdrawal is tax-free and 75% is taxable, until the £268,275 lump sum allowance is used up.

In the worked example, a £300,000 pension and £20,000 of savings pay £24,000 a year after tax from age 60. That takes £25,278 from the pension in the first year, with £1,278 of income tax. The full State Pension of £12,548 a year starts at 67 and cuts the withdrawal to £13,746, though the tax rises to £2,294 as the State Pension uses up the personal allowance. At 5% growth and 2.5% inflation the money runs short at 83; £21,097 a year would last to 95.

Assumptions

• Everything is in today's money. Growth is turned into a return above inflation, and the income you want, the State Pension and any other income are assumed to rise with inflation. The State Pension's triple lock has often raised it by more.
• Income tax thresholds are frozen in cash terms until April 2031, so in today's money they shrink each year until then and rise with inflation afterwards. The same is assumed for Scotland's bands, which the Scottish Parliament sets each year. The lump sum allowance is a fixed cash sum, so it shrinks every year.
• Savings, and any tax-free lump sum not spent, are assumed to sit where growth and withdrawals aren't taxed, such as an ISA. Other income is assumed to carry on for life.
• Growth is after charges, the same every year. A year's income is drawn at the start of the year.
• Real returns vary from year to year. A fall early in drawdown, while withdrawals are being taken, shortens how long a pot lasts more than the same fall later on, which a steady return doesn't show.

A quarter of a defined contribution pension can usually be taken tax-free, up to the £268,275 lump sum allowance across all your pensions, which a pot of £1,073,100 reaches. It can be taken two ways.

• Up front: the tax-free lump sum is paid when the pension moves into drawdown, and everything drawn after that is taxable income. The calculator adds whatever isn't spent to your savings.
• A slice at a time: each withdrawal is 25% tax-free and 75% taxable, whether taken as uncrystallised funds pension lump sums (UFPLS) or by moving part of the pot into drawdown at a time. What isn't drawn stays invested.

In the worked example, taking it up front means a £75,000 lump sum at 60, and every pound drawn from the pension after that is taxed as income.

Either way, the first taxable withdrawal brings in the money purchase annual allowance: from then on, no more than £10,000 a year can be paid into defined contribution pensions with tax relief. Taking only the lump sum doesn't trigger it.

Pension income is taxed through PAYE, like pay, with no National Insurance. The State Pension is paid without tax taken off, so HMRC usually collects the tax on it by adjusting the tax code your pension provider uses.

The first flexible withdrawal is often taxed on an emergency code, as if the same amount would be paid every month, so more tax is usually taken than is due. It can be reclaimed during the year on HMRC form P55, P50Z or P53Z, depending on whether the pot has been emptied and whether you still work, or HMRC refunds it after the tax year ends.

The full new State Pension is £241.30 a week in 2026/27, £12,548 a year, just under the £12,570 personal allowance. With the allowance frozen until April 2031 and the State Pension rising each April, it passes the allowance from April 2027, so for anyone on the full State Pension the taxable part of every pension withdrawal is taxed from the first pound. The government has said people whose only income is the State Pension won't have to pay the small amounts of tax this brings; the details are still to be confirmed.

Scottish taxpayers pay Scotland's rates and bands on pension income, as on pay, so the same withdrawal can leave a little more or a little less than elsewhere in the UK, depending on its size. Where you live decides which applies, not where the pension is.

For deaths on or after 6 April 2027, unused pension funds and most death benefits count towards the estate for inheritance tax, at 40% above the nil-rate bands, unless they go to a spouse, civil partner or charity. Whatever is left in drawdown is part of that. On a death at 75 or over, beneficiaries also pay income tax on what they draw, on the part not taken by inheritance tax. The inheritance tax on pensions calculator shows the bill on an estate before and after the change.