A Seven-Figure Pension: Your Options
A £1m pension pot delivers what most savers are ultimately chasing: a retirement where income is not the constraint. The remaining decisions – structure, tax, legacy – are high-stakes precisely because the sums are.
Access opens at 55, moving to 57 on 6 April 2028. Taking the full 25% releases £250,000 tax-free – usefully still within the Lump Sum Allowance, so no cap bites at this level – and leaves £750,000 to produce income.
Picture Richard and Anne, both 61, with the pot split across his SIPP and her workplace scheme. Their planning is about orchestration: two personal allowances, two sets of tax bands, a possible inheritance-tax exposure from 2027, and a shared wish to help their grandchildren while they are alive to see the benefit. Coordinating who draws what, and when, will decide how much of the million actually gets spent on the family.
Income From £1m: Annuity vs Drawdown
The guaranteed-versus-invested decision applies at every pot size, but a seven-figure fund changes its character: even the cautious route produces a substantial income, so the comparison becomes about risk appetite and estate intentions rather than making ends meet.
| Option | Annual Income | Monthly Income | Key Feature |
|---|---|---|---|
| Level annuity (age 67) | £39,000 | £3,250 | Guaranteed for life |
| Drawdown at 4% | £30,000 | £2,500 | Flexible, pot remains invested |
| Drawdown at 3.5% | £26,250 | £2,188 | More conservative, longer lasting |
Rows assume the £750,000 that remains after maximum tax-free cash, with the annuity priced as a single-life level contract at 67 on 2026 rates. Drawdown figures are the stated percentage of that balance and will move with markets rather than staying fixed.
Drawdown at this scale
With £750,000 invested, drawdown offers enormous latitude – income tailored year by year, capital preserved or spent by design, and a fund that can pass to the next generation. The scale cuts both ways: a 20% market fall wipes six figures off the fund, so governance matters. A written withdrawal policy and an annual review discipline are worth more than any product feature.
Annuities at this scale
Few people annuitise a full £1m, but partial annuitisation is common and rational: converting a few hundred thousand into guaranteed income can cover every fixed cost for life, freeing the invested remainder from any need to fund essentials. Enhanced rates for health or lifestyle factors improve the deal further.
Tax Strategy at the £1m Level
The tax-free element here is £250,000, which sits inside the Lump Sum Allowance – so the full quarter is available. All other withdrawals are taxed as income at marginal rates.
Familiar 2026/27 parameters govern the rest: a £12,570 personal allowance almost fully offset by the £12,548 State Pension, basic rate up to £50,270 of income, then 40%. An annuity of £39,000 plus the State Pension sits just above that threshold, so even the guaranteed route now involves some higher-rate tax – a fact worth modelling before choosing income levels.
From April 2027, pension funds remaining at death are also expected to face inheritance tax, transforming the planning landscape for large pots. Coordinating pension withdrawals with other assets, gifts and estate plans is where a good adviser demonstrably pays for themselves at this level of wealth.
Flexible access via UFPLS
You are never obliged to crystallise the pot in one event. UFPLS withdrawals release funds piecemeal – a quarter of each payment tax-free, the rest taxable – supporting fine-grained control of annual taxable income.
Is £1m the Magic Number?
For most lifestyles, yes. Annuity income of £39,000 plus the £12,548 State Pension totals about £51,548 a year, clearing the PLSA's £43,100 comfortable standard with margin. Drawdown at conventional rates produces slightly less initially but preserves capital and upside.
Protecting and Growing a £1m Pot
- Write the withdrawal policy down: a rules-based plan beats improvisation when markets wobble.
- Model the 40% band before setting income: at this scale even guaranteed income brushes the higher-rate threshold.
- Use deferral strategically: delaying the State Pension adds about 5.8% a year and can create room for larger pension withdrawals at lower rates.
- Anchor essentials with guaranteed income: then invest the remainder for total return with a clear conscience.
- Diversify properly: a pot this size should never depend on one asset class, region or platform.
Estate Planning With a £1m Pension
On death, drawdown funds go to your nominated beneficiaries – entirely free of income tax if you die before 75, taxed at their marginal rates thereafter. Keeping nominations current is essential housekeeping.
Annuities without joint-life or guarantee features stop at death. With seven figures at stake and inheritance-tax changes arriving in April 2027, the death-benefit design of your pension deserves professional review rather than default settings.