Paul Mitchell | Financial and Retirement Planning Coach
Find him here at: Your Smart Retirement Coach
Introduction: Retirement Isn’t What It Used to Be
There’s a common myth that retirement is a single event marked by a gold watch and a final payslip. But for most UK savers today, retirement is a journey that can last 30 years or more—and how you draw money from your pension pot can significantly affect your quality of life.
One of the biggest decisions you’ll face is how to access the savings you’ve spent decades building. You might be aware of terms like “drawdown” or “annuity,” but what do these really mean in practice? And with new tax rules on the horizon, how do you avoid costly mistakes?
In this comprehensive guide, I’ll explain:
- The key ways UK savers access pension benefits
- The pros and cons of drawdown and annuities
- How the 2027 IHT rule changes may impact you
- Why financial coaching could be the smartest first step
1. When Can You Start Taking Your Pension?
There are two important ages to remember:
- Personal/Workplace Pensions: From age 55 (rising to 57 from April 2028), you can typically access defined contribution pensions.
- State Pension: Currently age 66, rising to 67 by April 2028.
This means you may have a 10-12 year “gap period”, if you plan or desire to retire and stop working before your actual state pension age where you need income before your state pension kicks in. It’s during this window that careful planning matters most.
2. Your Two Main Options: Drawdown vs Annuity
A. Flexible Access Drawdown (FAD)
Introduced in 2015 under pension freedoms, FAD lets you keep your money invested while withdrawing income as needed.
How it works:
- You typically take 25% tax-free.
- The rest remains invested in funds you choose.
- You can draw income monthly, yearly, or as lump sums.
Pros:
- Flexibility: Adjust your income to match needs.
- Control: Stay invested, aim for continued growth.
- Inheritance: Unspent funds can be left to loved ones tax-free (under current rules). However, be aware that Inheritance Tax is due to be applied to “unspent funds” from April 2027. See point 4 below for more details.
Cons:
- Investment risk: Markets can fall, eroding value.
- No guarantees: Income may not last a lifetime.
- Complexity: Requires ongoing monitoring or advice.
Best for: Confident investors, those seeking flexibility, or people retiring in stages/phases.
B. Annuities
An annuity is an insurance product that converts your pension pot into a guaranteed income for life.
How it works:
- You give up your pot to an insurer.
- In return, you receive a fixed (or inflation-linked) monthly income for life.
Pros:
- Certainty: Income is guaranteed for life.
- Simplicity: No investment worries or decisions.
- Peace of mind: Great for covering essential costs.
Cons:
- Poor value in the past: Historically low rates deterred many.
- Inflexible: You can’t change your initial choices or access your capital.
- No inheritance: Unless you add costly guarantees.
- Best for: Risk-averse retirees, those with no desire to manage investments, or those wanting to cover core bills for life.
3. Blending Both Options: The Hybrid Approach
Increasingly, smart retirees are choosing a combo strategy:
- Use an annuity for core expenses (housing, utilities).
- Keep the rest in drawdown for flexibility and growth.
This allows peace of mind and the potential for higher income over time. A coach can help you model different scenarios based on your goals and lifestyle needs.
4. The 2027 IHT Rule Changes: A Hidden Trap?
Under current UK rules, unspent pension pots can be passed on free of inheritance tax (IHT) if you die before age 75. Even after 75, your beneficiaries only pay income tax.
But from April 2027, the government plans to introduce IHT on death benefits from pensions, regardless of age at death.
What this means:
- Leaving your pension untouched as a tax-efficient legacy may no longer be viable.
- Some people may start withdrawing funds earlier, especially if they can invest or gift them tax-efficiently.
- Planning withdrawals rather than simply leaving funds invested may become the better option.
This change makes it even more important to understand your withdrawal options and the timing of decisions.
5. Why Financial Coaching Can Help You Get This Right
You may be wondering: “Why would I use a financial coach and not a regulated financial adviser?”
Here’s the truth:
- Many advisers won’t deal with clients under £100k–£200k.
- Initial advice costs can be up to 3% of your pot, and ongoing advice fees can range from 0.5%–1.5% per year.
- My approach is different: I offer straightforward, jargon-free coaching for £250 per 90-minute session—no contracts, no retainer, and no hidden fees. AND I offer a FREE INITIAL NO OBLIGATION ZOOM DISCOVERY CALL FIRST.. You can book that here today.
We’ll talk through:
- When to take your tax-free lump sum
- How to structure drawdown income to reduce tax
- Whether a partial annuity makes sense for you
- How the IHT changes might influence your plan
- What your income may realistically look like from age 55 to 67+
This guidance could save you thousands—or stop you making an irreversible mistake.
If you want a feel and initial insight as to how coaching might work for you, please watch this recent video which I recorded which I hope you will find to be of value..
6. Case Study Example: Helen, Age 58
Helen has £160,000 in her personal pension and plans to retire at 60. Her state pension won’t kick in until she’s 67.
We modelled three options:
- Drawdown only: Too volatile and insufficient to cover her basic needs in down markets.
- Annuity only: Too rigid—she wants to travel and gift to grandchildren.
- Hybrid: A £60k annuity secured essential income, leaving £100k in drawdown for lifestyle and legacy goals.
With this balanced approach, Helen has confidence and flexibility.
7. Key Questions to Ask Yourself
- Do I need income now or later?
- Am I comfortable with investment risk?
- Do I want to leave money to loved ones?
- Can I afford to wait until state pension age?
- Would I sleep better with guaranteed income?
If you’re unsure, let’s talk it through—without the pressure of product sales.
Related Reading
1. Should UK Investors Hold Gilts in Their Pension and Investment Portfolios?
Explores how fixed income fits into a balanced retirement strategy.
2. Asset Allocation in Retirement: How to Find the Right Mix
A deep dive into managing investment risk as you draw income from your pot.
3. Understanding the Financial Advice Gap in the UK
Why so many people are excluded from traditional financial advice—and how coaching fills the gap.
Call to Action: Let’s Talk
If you’re navigating this maze alone, I can help you clarify the path.
🟠 Book your no obligation FREE 15-minute discovery ZOOM call with me now:
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About the Author
Paul Mitchell is a dedicated Financial and Retirement Coach (Qualified To Chartered Financial Planner status) with over 35 years of experience in financial services. Through Your Smart Retirement Coach, he helps clients build confidence in their financial future and create fulfilling retirement lifestyles. As a retirement transition coach, I’m committed to empowering investors with knowledge, perspective, and strategic support.
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Let’s find out if you’re truly ready—and help you get there.
Disclaimer:
This article is for educational purposes only and does not constitute regulated financial advice. Pension and investment rules can change, and their benefits depend on your individual circumstances. Always seek FCA-regulated independent financial advice for specific investment decisions, pension transfers, or product selection. As a retirement coach, I provide strategy and education but refer clients to qualified FCA-regulated advisers when regulated advice is required.
