A useful email from Rest Less this week on pension pot income. Here's the FreeBefore65 take - what it gets right, what it misses, and what it means specifically if you're planning to retire before 65.
Rest Less sent out a useful email last week. It broke down how much income a pension pot of £100,000, £250,000 and £500,000 might generate - covering both draw-down and annuity options. If you received it, it's worth reading. The numbers are broadly accurate and the comparison between draw-down and annuity is genuinely useful context for anyone thinking about this.
But - and this is the FreeBefore65 take - the framing has some limitations that are worth naming. Particularly for anyone planning to retire before 65.
What Rest Less got right
The basic mechanics are accurately presented. Taking 25% from a £100,000 pot as tax-free cash leaves £75,000, and withdrawing 4% of that annually generates £3,000 per year before tax. Combined with the full State Pension of £12,548 in 2026/27 that produces a total income of approximately £15,548 per year. [SunLife]
The annuity comparison is worth reading too. Current annuity rates for a healthy 65-year-old with a £100,000 pot are around 7% - producing roughly £7,000 per year for life. [Royal London] That's meaningfully better than it was. A 65-year-old with £100,000 can now secure roughly £7,500 per year of guaranteed income for life - up from barely £5,000 just three years ago. [Legal and General] For anyone who has been dismissing annuities for years, those rates deserve a second look.
And the article is honest that these are before-tax figures - which is more than some comparable content does.
What it doesn't tell you
Here's where the FreeBefore65 take diverges.
The Rest Less analysis is built around age 66 as the starting point - State Pension age, standard retirement, pot accessed now. That's a reasonable baseline for its target audience. But it's not the scenario for most people reading this site.
If you're retiring at 58, as I have, the question "what will my £500,000 pension give me" has a completely different answer - because the pension shouldn't be generating income at 58. It should be sitting untouched, growing.
As I've set out in the bridge years post on this site, a £500,000 pension pot left entirely alone for seven years at a conservative 4% net return reaches over £700,000 by age 65. The pot that Rest Less shows you generating £20,000 per year at 4% draw-down is not the pot you'll have if you give it seven years to grow. It's considerably larger. And the income it can sustainably generate is proportionally higher.
The question for early retirees isn't "what will my pot give me now" - it's "what will my pot give me when I actually start drawing from it, having left it to grow during the bridge years." Those are meaningfully different numbers.
The tax-free cash question
The Rest Less article takes the 25% tax-free cash lump sum as the obvious first step - reducing the pot before calculating drawdown income.
This is one option. It isn't automatically the right one.
Taking all your tax-free cash upfront gives you a lump sum - but it also permanently reduces the invested pot that generates your ongoing income. For early retirees in particular, UFPLS - Uncrystallised Funds Pension Lump Sum - spreads the tax-free element across multiple years, making each year's withdrawal automatically 25% tax free. Depending on your income needs and tax position, this can be significantly more efficient than a single lump sum.
We've covered UFPLS in detail in the draw-down strategy post. It's worth understanding as an alternative before defaulting to the take-25%-now approach.
The 4% rule applied to a reduced pot
The Rest Less calculation applies 4% to the post-tax-free-cash pot - not the original pot. So on a £500,000 pension, taking 25% tax-free leaves £375,000, and 4% of that is £15,000 per year rather than £20,000.
Using the 4% rule on a £500,000 pension gives roughly £20,000 per year. [Pensionssharedservice](https://pensionssharedservice.org.uk/active-members/death-in-service-benefits/) The Rest Less figure of £15,000 applies the 4% after taking the tax-free cash - which is a more conservative and arguably more realistic approach, but worth understanding clearly rather than taking as given.
For UK early retirees, most financial planners suggest an even more conservative 3 to 3.5% drawdown rate to account for longer retirement periods and UK market characteristics. At 3.5%, £375,000 generates £13,125 per year - lower than the Rest Less figure. The longer your retirement, the more conservative the withdrawal rate needs to be.
The annuity question for early retirees
Annuity rates are driven primarily by long-term gilt yields. Very early retirees buying at 55 lock in lower rates for potentially 35+ years - and inflation will erode a level annuity significantly over that time-frame. [Legal and General]
The older you are when you arrange an annuity, the higher the rate you'll get - reflecting the fact that the annuity provider won't have to pay out for as long. [Royal London] Which means the attractive rates currently available - around 7% for a 65-year-old - drop significantly for someone buying in their late fifties. The annuity comparison in the Rest Less article applies most directly to someone accessing their pension at or around State Pension age.
The April 2027 IHT change also affects the annuity versus drawdown calculation. From April 2027, unused pension pots will be subject to inheritance tax. This changes the drawdown versus annuity equation - if your main reason for staying in drawdown was to pass your pot to beneficiaries tax-efficiently, that advantage is significantly reduced. Annuities become relatively more attractive for those focused on maximising lifetime income rather than inheritance. [Legal and General]
The commercial angle - worth naming
Rest Less is a well-regarded platform and the content is genuinely useful. But like most retirement content produced by commercial platforms, it has a destination. The article includes an offer of a free initial consultation with HUB Financial Solutions, a nationwide advice firm - and notes that if you choose to receive paid-for regulated advice, fees will be explained. [SunLife]
That's not wrong. Independent regulated advice on pension access decisions is genuinely worth having. But it is a commercial referral arrangement - HUB Financial Solutions is presumably paying Rest Less for that introduction. Which means the article's primary purpose is partly to generate that lead.
This doesn't make the content bad. The numbers are accurate. But it's worth reading it with that commercial context in mind - which is exactly the point of the Unbiased Retirement Planning post on this site.
The FreeBefore65 bottom line
The Rest Less article is a useful starting point for understanding the mechanical relationship between pot size and retirement income. Read it. The annuity rates comparison in particular is worth taking in - annuities have become meaningfully more competitive than they were three years ago and deserve to be part of the thinking for anyone approaching pension access age.
But if you're planning to retire before 65, run your own version of the calculation with your actual numbers, your actual planned access age and your actual bridge strategy. The generic three pot sizes at age 66 aren't your scenario.
The drawdown strategy post and the bridge years post on this site go into the specific mechanics for early retirees in considerably more depth - with worked examples across different pot sizes that are designed for people accessing their pension at 65 rather than 67, and living on an ISA bridge in the years before that.
And as always - for decisions about pension access, Pension Wise at moneyhelper.org.uk/pension-wise offers free guidance for anyone over 50. It's government-backed, impartial and has nothing to sell you.
Tony writes about his personal journey to early retirement at freebefore65.co.uk. He is not a financial adviser. All content reflects his own experience and research. Always take regulated independent advice before making pension access decisions.
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