£1.5m in Pension Savings: What Changes at This Level
At £1.5m, pension planning acquires rules that smaller pots never meet. The headline one is the Lump Sum Allowance: the standard 25% tax-free calculation on this pot comes to £375,000, but the allowance caps tax-free cash at £268,275, so that is the maximum available unless you hold transitional protection.
Access itself follows the usual timetable – age 55 now, 57 from 6 April 2028. Take the capped £268,275 and £1,231,725 remains to generate income through drawdown, annuity purchase or a combination.
Take Jonathan, 59, a retired surgeon whose NHS benefits and private SIPP together reach £1.5m. His concerns are characteristic of the tier: how the LSA interacts with his lump-sum plans, whether historic protections apply, and what the April 2027 inheritance-tax changes mean for the fund his children were meant to inherit.
Annuity and Drawdown Income on £1.5m
However the tax-free cash question resolves, the income engine still needs choosing: contractual payments from an insurer, an invested fund you draw from, or a deliberate mixture of the two.
| Option | Annual Income | Monthly Income | Key Feature |
|---|---|---|---|
| Level annuity (age 67) | £58,500 | £4,875 | Guaranteed for life |
| Drawdown at 4% | £45,000 | £3,750 | Flexible, pot remains invested |
| Drawdown at 3.5% | £39,375 | £3,281 | More conservative, longer lasting |
Table figures are modelled on £1,125,000 – the balance implied by a full 25% withdrawal. In practice the Lump Sum Allowance caps tax-free cash at £268,275, so your invested balance would actually be around £1,231,725 and the incomes correspondingly higher. The annuity row prices a level, single-life contract at age 67 on 2026 rates; drawdown rows apply their percentage to the residual fund, so payouts fluctuate with performance.
Running drawdown on seven figures
A fund of this size in drawdown supports almost any income pattern you can design, and unspent capital remains available for later life and legacy. But scale amplifies stakes: portfolio governance, withdrawal discipline and periodic professional review stop being nice-to-haves. Sequencing risk still applies at £1.5m – it just involves bigger numbers.
Using annuities selectively
Wholesale annuitisation is rare at this level, yet targeted annuity purchase remains powerful: converting part of the fund into guaranteed income immunises your core standard of living against markets entirely. Enhanced terms for health conditions can sweeten the rate. What remains invested then answers only to your growth and inheritance goals.
Tax and the Lump Sum Allowance at £1.5m
The central constraint: tax-free cash stops at £268,275 – the Lump Sum Allowance – rather than the £375,000 a straight 25% would suggest. Withdrawals beyond the tax-free element are taxed as income at your marginal rate.
Standard 2026/27 mechanics apply from there: the £12,570 personal allowance is almost wholly absorbed by a £12,548 full State Pension, basic-rate tax runs to £50,270 of income, and 40% applies above. Note that an annuity of £58,500 plus the State Pension places you into higher-rate territory permanently – one reason many at this level prefer controllable drawdown income.
Estate exposure compounds the picture: from April 2027, pensions left at death are expected to fall within inheritance tax. For a £1.5m fund the potential liability is substantial, and mitigation – from earlier spending to lifetime gifting out of drawn income – needs modelling well before the rules land. This is unambiguously adviser territory.
Partial withdrawals instead
UFPLS remains available at this scale: each lump sum is 25% tax-free and 75% taxable, with the tax-free portions counting against the same overall Lump Sum Allowance cap, and can help pace taxable income across years.
Retirement Living on £1.5m
Income is emphatically not the problem. Annuitised, the fund's £58,500 plus a £12,548 State Pension delivers about £71,048 a year – far beyond the £43,100 the PLSA defines as comfortable. Drawdown at moderate rates achieves similar spending power while retaining the capital.
Managing a £1.5m Pot Well
- Check for protections first: fixed or individual protection from earlier regimes can raise your personal lump-sum limits – verify before crystallising anything.
- Plan around permanent higher-rate tax: at this income level the 40% band is a feature, not an accident; structure withdrawals accordingly.
- Time the State Pension deliberately: deferral's roughly 5.8% annual uplift may or may not beat investing the equivalent – model it.
- Buy certainty where it is cheapest: a partial annuity secures essentials so the invested majority can target growth.
- Start the inheritance-tax conversation now: April 2027 is close, and large-pot strategies take years, not months, to execute.
Succession: Your £1.5m Pension After Death
Drawdown balances pass to nominated beneficiaries – free of income tax where death occurs before 75, and taxed at each beneficiary's marginal rate where it occurs later. With sums like these, nomination paperwork and beneficiary drawdown options deserve regular review.
Annuity income ordinarily ends at death unless joint-life or guaranteed-period cover was bought. Factor the coming inheritance-tax treatment of unspent pensions into every death-benefit decision from here on.