Amanda and Ray normally spend around £1,500 a month. They want enough pension income to cover this and enable them to spend more on holidays and other treats. They use their cash savings for big purchases and emergencies, and like to have a large cash balance for security. They want to use their pension savings to enjoy themselves while they’re alive. They don’t have anyone to leave a legacy to, but even if they did, their combined assets are less than £650,000 (the joint inheritance tax threshold – for a single person it’s currently £325,000) so there wouldn’t be any inheritance tax.
Amanda's idea: Amanda thinks she only needs around £600 a month to get the income they want. This means she wouldn't have to pay income tax, as the yearly total of £7,200 is less than the standard personal income tax allowance of £12,570 (in 2023/24).
Our advice: Our financial planner recommends taking a flexible income. This will enable Amanda to vary the amount of income she takes in future – for example, when her State Pension starts. Our planner also suggests Amanda should make full use of her personal income tax allowance (as if you don’t use it, you lose it) and take £1,047.50 a month.
She can use any money left over each month to top up their savings for making bigger purchases, so they keep their financial ‘comfort blanket’. Amanda agrees, so our planner researches the market and recommends a drawdown pension product with competitive charges that meets Amanda’s needs. Our planner also advises Amanda on her investment choices.
When she’s 67 Amanda will be able to claim her State Pension, which is likely to be around £10,000 a year. Her drawdown pension will stay invested for Amanda to take flexible income from in future, in whatever way works for her or if she chooses to she can buy an annuity in the future too.
