Pension holders with ‘retirement super pots’ pay themselves around £3m each in a year, as reported by Titan Wealth Planning. The figures obtained from HM Revenue and Customs (HMRC) for the year 2023-24 reveal that the top 25 annual pension incomes average around £2,982,000. Titan Wealth Planning obtained these statistics and warned that some pension holders may see a significant increase in their tax liability.
Approximately 8,000 retirees paid themselves £100,000 or more from their pension pots in the same period. Derek Miles, the CEO of Titan Wealth Planning, highlighted the potential tax implications of withdrawing large amounts from pensions. He mentioned that an individual taking out an annual pension income of £3 million could face a tax bill of £1,336,202, resulting in take-home earnings of £1,663,798.
Under Freedom of Information (FOI) rules, these figures relate to taxable flexible pension payments. Pension holders have the flexibility to take a portion of their pension pots tax-free, with the remaining amount subject to taxation. Mr Miles stressed the importance of making the right type of withdrawal to protect the retirement savings accrued over a lifetime.
He also mentioned that leaving pension funds to future generations has become a common practice in estate planning due to the associated tax benefits. Titan Wealth Planning calculated that a pension investor paying themselves £100,000 from a private pot could potentially face an income tax of £27,431, assuming no other income sources. The size of the tax bill could vary depending on various factors, such as receiving the state pension or other employment income.
Flexible retirement rules allow individuals to access their pensions from the age of 55, while the state pension typically begins at 66. Mr Miles advised considering bespoke advice when planning both pension and estate matters to navigate the tax implications effectively and ensure financial security for the future.