You’ve spent decades building your retirement savings, now it’s time to make that money work for you.
But here’s the thing: the way you draw your income matters just as much as how much you’ve saved.
Get it right, and you could keep more in your pocket every year. Get it wrong, and you could hand thousands back to the taxman without even realising it.
Here are five clever moves that can help you boost your income, without paying more tax.
1. Tap Your ISA First (Or Blend It In)
You don’t always need to go straight to your pension pot.
ISA withdrawals are 100% tax-free. That means you can use them to top up your income without nudging yourself into a higher tax band or burning through your personal allowance too quickly.
In real terms? You could take the same total income, pay less tax, and keep more of it to actually spend. Sometimes it’s not about taking more, just taking it from the right place.
One quick reminder: if you’re using a non-flexible ISA, any withdrawals won’t be added back to your annual ISA allowance. So if you’re planning to take money out and replace it later, double-check whether your ISA is flexible.
2. Stack Your Income Smarter
State pension. Workplace pensions. ISAs. Dividends. Rental income. Retirement often means performing a juggling act with income from different places, and the order you take them in can seriously affect your tax bill.
Especially now, with the dividend allowance down to just £500 and the personal savings allowance frozen at £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers (zero for additional-rate taxpayers), it’s more important than ever to structure your withdrawals wisely.
Say your state pension already uses most of your personal allowance. If you pull more from your pension pot, that next pound might be taxed at 20%, or even 40%. But if you shift some of that income to an ISA or tax-free cash, you could stay in a lower bracket and stretch your tax bands further.
This isn’t about making life complicated. It’s about taking five minutes to look at what comes from where, and saving thousands in the process.
3. Don’t Trigger the MPAA Unless You Mean To
Planning to keep saving into your pension? Be careful when you start drawing income from it.
As soon as you take any taxable income from your pension (including from a Uncrystallised Funds Pension Lump Sum, which combines tax-free and taxable income in one go), the Money Purchase Annual Allowance (MPAA) kicks in, slashing your annual contribution limit from £60,000 to £10,000 permanently.
Also worth noting: the Lifetime Allowance was abolished in 2024, but three new lump-sum limits now apply when accessing pensions. It’s a more flexible system, but also one that’s trickier to navigate without advice.
If you’re still earning, consulting, or just want the option to rebuild your pot later, that’s a big hit.
Want to avoid it? Stick to just your tax-free lump sum for now, or lean on other income sources like ISAs. You’ll keep your contribution limits intact, and your long-term flexibility wide open.
4. Delay Your State Pension for a Built-In Income Boost
Want a guaranteed return, no investment risk, and inflation protection? Deferring your state pension might be the best deal you’ve never considered.
Every nine weeks you delay adds 1% to your payments, that’s a 5.8% boost per year. And once it starts, it keeps going for life.
If you’ve got other income to rely on, like part-time earnings or an ISA buffer, holding off for a year or two could significantly lift your long-term retirement income, without doing a thing.
5. Refresh Your Strategy Every Year
Tax rules change. So do your goals, your income, your lifestyle.
That’s why retirement income planning isn’t something you do once and forget. The most effective plans are the ones that evolve, checking each year:
- Are you still using your allowances wisely?
- Is your income coming from the best mix of sources?
- Are you close to any tax thresholds you could sidestep?
Even small shifts, like taking £5,000 from your ISA instead of your pension, can make a big difference over time. The smartest move? Make review and adjust part of your annual routine.
Let’s Make Sure You’re Not Giving Away More Than You Need To
Your savings got you this far. Now it’s about making them last, and keeping more of your income, tax-free, where it belongs.
At Cedar House Financial, we help clients build income plans that are clear, flexible, and tax-smart. So before your next withdrawal, let’s make sure your retirement income is working as hard as you did to save it.
📞 Call 020 8366 4400
📧 Or email enquiries@cedarhfs.co.uk to book your personalised drawdown strategy session.