This page takes one £150,000 pot at 65 and draws it three different ways, because the route out of a pension changes the tax, the flexibility, and one allowance most people have never heard of until they have already lost it. Our withdrawal-order page covers which wrapper to spend first; this one is about the exits from the pension itself.
The example: age 65, a £150,000 pot, a full new state pension of £12,548 a year, no other income. Each route targets roughly £10,000 a year of pension income on top.
| Route | Tax-free cash | Year-one taxable income | Year-one tax | Triggers the £10,000 contribution cap? |
|---|---|---|---|---|
| Flexi-access drawdown: crystallise all, take the 25%, draw £10,000 a year | £37,500 up front | £22,548 | £1,996 | Only when you draw income (not on the tax-free cash alone) |
| UFPLS: sell £13,333 slices, each 25% tax-free | £3,333 per year, spread | £22,548 | £1,996 | Yes, from the first slice |
| Lifetime annuity: take the 25%, buy guaranteed income with £112,500 | £37,500 up front | £20,187 (£7,639 annuity + state pension) | £1,523 | No |
Reading the table honestly: drawdown and UFPLS produce the same tax bill for the same income; the difference is when the tax-free cash arrives (one lump versus a slice in every payment) and what happens to your future contribution allowance. The annuity's lower tax reflects lower income: £7,639 a year is what £112,500 buys at 65 on a single-life, level basis with no guarantee period, from published quarterly rate tables. That income never runs out and never falls; it also never rises, so inflation eats it, and escalating or guaranteed versions of the same annuity start noticeably lower. Drawdown's £10,000 a year is a choice, not a guarantee: the pot behind it can grow, shrink, or run out.
Information and guidance only. Not personal advice. The table shows tax and rate arithmetic for one stated example, not a recommendation of any route. Annuity rates move with gilt yields and your health; drawdown outcomes depend on markets; the right route, or mix, depends on circumstances this page cannot see. Pension Wise offers free guidance for over-50s. Investment values can fall as well as rise and you may get back less than you put in. Verify decisions with a qualified FCA-authorised adviser before acting.
The money purchase annual allowance is the rule most people meet backwards. Take taxable income flexibly from a pension, even once, and the amount you can pay into pensions with tax relief drops from £60,000 a year to £10,000, for life.
The routes differ precisely here. A UFPLS payment triggers it from the first slice, because every slice contains taxable income. Drawdown triggers it only when you take taxable income out of the drawdown pot: crystallising and taking the tax-free cash alone does not. A lifetime annuity purchase does not trigger it at all, and neither does cashing in up to three small pots of £10,000 or less. This matters most for anyone drawing on a pension while still working, or planning to: dip into a pot with a UFPLS at 58 to cover a bad year, and the salary-sacrifice room you meant to use at 60 is capped at £10,000, with no carry-forward into it. The order "tax-free cash before taxable income, taxable income last" exists for exactly this reason.
The first taxable payment from a pension is typically taxed on an emergency "month 1" basis: HMRC's systems treat one payment as the first of twelve, apply a single month's worth of allowance and bands, and overtax the rest.
The money comes back, through an in-year reclaim form or an end-of-year reconciliation, but a retiree planning to the pound should expect the first payment to land light and plan the reclaim rather than be surprised by it. The practical mitigations are unglamorous: take a small first payment to force a correct tax code before the large one, or route the year's income as regular monthly payments rather than one lump, which lets PAYE settle down. This is a cash-timing issue, not a cost, but in the month it happens it feels like one.
Nothing requires one exit. A common shape: annuitise enough of the pot to cover fixed essentials alongside the state pension, and leave the rest in drawdown for flexible spending.
In the worked example, using part of the pot to lock roughly £7,600 of guaranteed income on top of the £12,548 state pension puts essential spending beyond market risk; the remaining drawdown pot then only has to fund the nice-to-haves, which is exactly the spending that can flex in a bad year, where flexibility is worth most. Phased approaches also exist inside each route: crystallising the pot in stages spreads the tax-free cash and keeps more of the fund uncrystallised, and annuity purchases can be laddered across years rather than priced on a single day's rates. The point of this page is not that one exit wins; it is that the exits price differently, tax differently and close different doors, and the pot's size says nothing about which fits your life.
Methodology. Example: age 65, £150,000 defined-contribution pot, full new state pension £12,548, no other income, 2026/27 rates from rules bundle UK-2026.1.1 (personal allowance £12,570, basic rate 20%, tax-free cash 25%, money purchase annual allowance £10,000, small pots £10,000 up to three). Annuity figure: age-65 single-life level rate, no guarantee period, £6,790 per £100,000 from William Burrows published quarterly tables (2026-Q1 snapshot in bundle UK-CMA-2026.1); quotes vary by provider, health and postcode. Drawdown income is illustrative and not guaranteed. All arithmetic machine-checked before publication. Published 8 August 2026 · figures last verified 8 August 2026.
Sonuswealth is pre-launch. The app compares the routes on your pot, your other income and your allowance position, side by side in pounds.