- The moment the pot becomes an income
- Your 25% tax-free cash — and the cap on it
- Drawdown vs annuity — the core decision
- The tax-efficient order to draw your money
- The emergency-tax trap on your first withdrawal
- The MPAA — how taking money can slash what you can save
- Running out too soon — sequence risk in drawdown
- The state pension — your secure, inflation-proof base
- Passing it on — and the April 2027 IHT change
- The traps that quietly cost thousands
- Your drawdown action plan
Here's one of the Playbook's core sections in full — so you can see exactly how it reads before you buy. We follow one example throughout: David, 60, with a £400,000 defined-contribution pot, no final-salary pension, full State Pension due at 67, who wants around £25,000 a year.
4The tax-efficient order to draw your money
Pension income above your tax-free cash is taxable, like a salary — but you have several tax-free channels, and the order you use them is everything: the Personal Allowance (£12,570/yr at 0%), your tax-free cash drawn in slices, and ISA withdrawals (tax-free, and not counted as income).
When David's State Pension (~£12,548) starts at 67, it's taxable and uses up almost all his Personal Allowance — so the order has to shift again, and extra taxable pension income is then taxed at 20%…
The principle holds throughout: fill the Personal Allowance with taxable pension, then top up from tax-free sources, and keep one eye on the £50,270 higher-rate line…
Read the rest — annuity vs drawdown, the traps, and the 2027 IHT change
The full 13-page Playbook covers your 25% tax-free cash and the Lump Sum Allowance, the drawdown-vs-annuity decision (and the "secure floor" move most people miss), the emergency Month-1 tax trap and how to reclaim it, the MPAA, sequence-of-returns risk, the state pension, the April 2027 pensions-into-IHT change, and a step-by-step drawdown action plan.
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How much of my pension can I take tax-free?
Normally 25% of your defined-contribution pot is tax-free — on a £400,000 pot, up to £100,000 — capped across all your pensions by the Lump Sum Allowance of £268,275 (most people are well under it). You don't have to take it all at once: phasing it, taking it only as you need it, keeps more invested and is often far more tax-efficient. The Playbook works this through with a running example.
Should I choose drawdown or an annuity?
Drawdown keeps your pot invested and flexible but leaves you carrying the risk it could run dry; an annuity hands a lump sum to an insurer for a guaranteed income for life but is usually irreversible. In recent examples a healthy 65-year-old could get roughly £7,000–£7,500 a year per £100,000 on a level annuity. The move most people miss is doing both — securing essential bills with guaranteed income and keeping the rest in drawdown. The Playbook explains how to size that split.
What's the most tax-efficient way to draw my pension?
Pension income above your tax-free cash is taxable like a salary, but the order matters. A common approach is to fill your Personal Allowance (£12,570 at 0%) with taxable pension income, then top up from tax-free cash taken in slices and ISA withdrawals. In the Playbook's example, David draws £25,000 a year with £0 income tax before his State Pension starts — the same £25,000, taken blindly, could cost thousands.
Why was I charged emergency tax on my first pension withdrawal?
On a first flexible withdrawal HMRC often can't see your full-year position, so the provider applies an emergency "Month 1" code that taxes the payment as if you'll receive it every month for a year — a large over-deduction. Defend against it by taking a small taxable withdrawal first to get your correct code in place, or reclaim the overpayment straight away with HMRC form P55 (or P53Z / P50Z).
How does the April 2027 pensions-and-IHT change affect me?
From 6 April 2027, most unused pension funds and death benefits will be included in your estate for Inheritance Tax. Transfers to a spouse or civil partner remain exempt and death-in-service is excluded, but for larger estates a big unused pension could face 40% IHT on top of any income tax heirs pay when they draw it. The old "preserve the pension, spend everything else" logic can flip — the Playbook explains what it means in practice.
Is this financial advice?
No. It's general information for the 2026/27 tax year to help you understand how UK pensions and drawdown work — not personal financial advice, and pension decisions are often irreversible. Confirm current figures at gov.uk, use the free Pension Wise service, and take qualified, regulated advice before acting.
Can I get it for free?
Every WealthR Playbook can be read online in-app with WealthR Pro (£39.99/year), along with all the tools and future editions kept current each tax year. Or buy this Playbook on its own for £19.99 as a PDF that's yours to keep.
Which tax year does it cover?
The 2026/27 UK tax year (England, Wales & NI), published July 2026. Figures are checked against gov.uk, and each year a fresh edition is published with a plain-English summary of what changed.