The UK’s wealthiest retirees paid themselves annual pension income of almost £3m each last year, but almost half of that was paid as tax, new figures have shown.

A Freedom of Information (FOI) request to HMRC from Titan Wealth Planning showed that the 25 largest pension incomes averaged £2.98m in 2023/24.

Assuming no other income streams, someone taking an annual pension income of £3m would be looking at a tax bill of £1.34m.

Titan Wealth Planning CEO, Derek Miles, noted that uncertainty over pension tax changes in the upcoming Budget had reportedly led to a surge in withdrawals in recent weeks, but warned that the FOI figures illustrated the pitfalls of high net worth individuals (HNWI) making large drawdowns without the right counsel.

The estate planning firm urged HNWIs to carefully consider the type of withdrawals they make to mitigate tax exposure, and preserve a legacy for the next generation.

The FOI data showed that approximately 8,000 retirees are paying themselves £100,000 or more from their pension pots annually, including around 2,000 earning £200,000 or more.

Around 39,000 were withdrawing a pension income of £50,000 or more, while the average annual taxable income stood at £15,168.

A pension investor paying themselves £100,000 from a private pot could expect to pay £27,431 in income tax, assuming they had no other income streams, while a £50,000 pension income earner would lose £7,486 in take-home pay.

“There may be perfectly valid reasons why HNWIs may wish to draw seven figure sums from their pots,” Miles stated.

“Perhaps they wish to invest in a business, buy a yacht to sail around the world, or they may simply want to help their children get a foot on the housing ladder.

“But withdrawing your money in large chunks can dramatically increase your tax liability and ultimately erode what you later pass on to the next generation.

“Under current rules, pensions can usually be passed on free of inheritance tax (IHT) using a nomination form. Beneficiaries either take their share of the pot as a lump sum, or leave it invested in a pension and use it to provide an income when they need it. Inherited pension money can be accessed straight away - the beneficiary doesn’t have to wait until the age of 55.

“Leaving pension funds to children and grandchildren has become a central pillar of estate planning because of the tax advantages. Withdrawing huge sums while you are alive may leave your successors less well off.

“Pensions and estate planning are rarely straightforward. The rules are always evolving and there’s never a one-size fits all approach. That’s why it’s never been more important to have the right counsel on your side to offer bespoke advice depending on your situation.”

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