Skip to content

Guide · 12 October 2026

The years the State Pension will not cover.

If you stop work at 60 and your State Pension age is 67, somebody has to pay for seven birthdays. That somebody is usually your ISA, your cash, a partner’s earnings, or a defined benefit pension that has already started. It is rarely “the pension pot”, because the pot may still be shut.

Tea poured at a kitchen table beside a notebook

The sketch below ignores inflation, tax, investment returns, and fees on purpose. It shows the size of the hole, not a product that fills it. Tax on pension income depends on the whole person, including whether Scottish rates apply.

Bridge sketch

Put in spending you would like, income that is already promised during the bridge, and how many years until the State Pension. The result is a cash pile if you simply held the gap in notes. Real life is lumpier than that.

An order, not a commandment

  1. 1

    Cash for the near mess

    A year of spending in cash, or whatever lets you sleep, means you are not selling investments the month a boiler and a market both fail. Cash loses to inflation. That is the price of not being forced.

  2. 2

    ISA for the locked years

    Money you need before minimum pension age has to sit outside the pension, unless a defined benefit scheme or a partner’s wage covers you. An ISA withdrawal does not, by itself, fill up your income tax band.

  3. 3

    Pension once it is open, and once you mean it

    After the minimum age you can usually take a tax-free lump sum within the lump sum allowance and draw the rest as income. Drawing taxable income can switch on the money purchase annual allowance. If you might still work and pay in, read that rule before the first payment.

  4. 4

    State Pension when it actually starts

    Deferring can increase later payments. It is not free: you give up income now. Whether that suits you depends on health, other income, and tax. It is a personal sum, which is why we do not print a “right” answer.

Drawdown

The pot stays invested. You choose income. You also choose the risk that markets fall early, which is the sequence problem: selling shares after a drop to pay the council tax leaves less to recover. A cash buffer is the unglamorous answer most serious write-ups come back to.

Annuity

You exchange a lump sum for an income, sometimes for life, sometimes rising, sometimes covering a spouse. You give up flexibility. You gain a promise from an insurer, within the compensation rules that apply if that insurer fails. Rates move. Shopping on one Monday in a panic is how people leave income on the table.

A blend

Some households secure a floor — State Pension plus a small annuity or defined benefit — and leave the rest invested. The floor is what keeps a bad decade from becoming a change of address. There is no blend we endorse. There is a question: what must be paid even in a bad year?

Tax, including the Scottish kind

For 2026/27 the personal allowance is £12,570. Above that, England, Wales, and Northern Ireland charge basic rate at 20% up to £50,270 of taxable income, then higher rate, then additional rate. Those bands have been frozen for several years. Confirm they still match your tax year.

Scotland sets its own rates and bands on earned income and on pension income. Savings interest and dividends stay on UK rates even if you live in Glenrothes. A withdrawal plan copied from an English worksheet can understate tax for a Scottish taxpayer in the higher bands.

The tax-free pension lump sum is not a hobby. The standard lump sum allowance is £268,275. Taking it all on day one can feel like a prize and then sit in a taxable savings account for a decade. Leaving it inside the pension, invested, is allowed. So is taking it in slices, depending on the scheme. Ask what your scheme actually permits before you fall in love with a percentage.

Before the resignation email

  • State Pension forecast saved, with the age it names.
  • Scheme retirement age and early factors, if you have defined benefit.
  • A list of spending that is real, not a heroic budget from a quiet January.
  • Debts and the mortgage end date. Retiring into a large repayment is a different sport.
  • Sick pay, redundancy terms, and whether a partner’s job carries the household for a while.
  • A conversation with Pension Wise via MoneyHelper if you are over 50 and about to take pension money. It is free guidance, not a sales call.
Next: coasting, in pounds