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Some “retirement super pot” holders have been paying themselves an annual pension income of around £3 million each, figures reveal.
According to HM Revenue and Customs (HMRC) data for 2023-24, the biggest 25 annual pension incomes averaged £2,982,000, rounded to the nearest £1,000.
Titan Wealth Planning obtained the figures from HMRC.
It found that around 8,000 retirees (rounded to the nearest thousand) paid themselves £100,000-plus from their pension pots in 2023-24.
Derek Miles, chief executive of Titan Wealth Planning, cautioned that some high net worth individuals may potentially see their tax liability dramatically increase by taking out big chunks from their pension.
When you've spent a lifetime building a retirement super pot, it’s important to protect it— Derek Miles, Titan Wealth Planning
He said: “Assuming there were no other income streams, someone taking annual pension income today of £3 million would be looking at an eye-watering tax bill of £1,336,202, leaving them with take-home earnings of £1,663,798. In other words, they would lose almost half their windfall.
“When you’ve spent a lifetime building a retirement super pot, it’s important to protect it by making the right type of withdrawal.”
The figures obtained by Titan under Freedom of Information (FOI) rules relate to taxable flexible pension payments.
Under flexible retirement rules, pension holders can generally take a portion of their pots tax-free, with the remainder subject to tax.
Mr Miles added: “There may be perfectly valid reasons why high net worth individuals may wish to draw seven-figure sums from their pots.
“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.”
Mr Miles added: “Leaving pension funds to children and grandchildren has become a central pillar of estate planning because of the tax advantages.”
A pension investor paying themselves £100,000 from a private pot could potentially pay £27,431 in income tax, assuming no other income streams, Titan calculated.
Mr Miles said the size of the tax bill could also potentially depend on whether someone receives the state pension.
Flexible retirement rules enable people to access their pensions from the age of 55 at present, while the state pension currently starts to be paid from the age of 66.
Mr Miles added: “If you’re still receiving employment income while drawing on your private pension, then this too will add to your tax bill.”
He suggested people may want to consider receiving bespoke advice when planning their pension and estate.
