Your Options With a £350,000 Pension Pot
£350,000 of pension savings buys real choice. None of the retirement income routes is closed to you, and the pot is big enough to combine several of them rather than betting everything on one.
Access begins at 55 today and moves to 57 on 6 April 2028. At that point a quarter of the fund – £87,500 – is yours tax-free, while the remaining £262,500 stays available for annuity purchase, flexi-access drawdown, or occasional lump-sum withdrawals.
Picture Sandra and Mark, both 64. Her £350k workplace pension is the couple's main asset beyond two State Pensions. Their question is less about maximising income than about certainty: fixing the household bills with guaranteed money while keeping something invested for care costs decades away.
Comparing Annuity and Drawdown Income on £350k
Converting savings into a monthly income comes down to two mechanisms: hand an insurer the capital in exchange for payments that never stop, or keep the capital invested and pay yourself from it. The table shows what each route yields on today's assumptions.
| Option | Annual Income | Monthly Income | Key Feature |
|---|---|---|---|
| Level annuity (age 67) | £13,650 | £1,138 | Guaranteed for life |
| Drawdown at 4% | £10,500 | £875 | Flexible, pot remains invested |
| Drawdown at 3.5% | £9,188 | £766 | More conservative, longer lasting |
Figures relate to the £262,500 left after the full tax-free lump sum has been withdrawn. The annuity quote is single-life and level, priced at age 67 on 2026 rates; drawdown rows show the chosen withdrawal percentage applied to that balance, and real-world income will fluctuate as fund values move.
Why keep the pot invested?
Staying in drawdown preserves options. Income can rise for a holiday year and fall when a part-time contract comes in; unused funds keep compounding; and whatever is left passes to your family. The price of that freedom is risk – a bad run of returns early on can permanently dent what the pot can safely pay.
Why lock in an annuity?
Certainty is the annuity's whole appeal: a payment that arrives for life regardless of what markets do, with no ongoing decisions required. It carries particular weight for households whose only other dependable income is the State Pension. Declaring health conditions or smoking can secure an enhanced rate, and partial annuitisation – insuring just the essential bills – lets a £350k pot deliver both security and flexibility.
Tax on a £350,000 Pension
HMRC treats the first 25% (£87,500) as tax-free. From then on, withdrawals stack on top of your other income and are taxed at your marginal rate through PAYE.
With the 2026/27 personal allowance frozen at £12,570 and the full new State Pension worth £12,548, virtually no allowance is left over for pension withdrawals – so budget for basic-rate tax on most of what you draw, and 40% on any portion that pushes total income beyond £50,270.
Timing matters more than most people expect. Two medium withdrawals either side of 6 April often beat one large one, and couples can halve the pain by making sure each spouse uses their own allowance and basic-rate band.
Phasing your tax-free lump sum
The £87,500 need not leave the pension in one go. UFPLS withdrawals release cash in slices, each one 25% tax-free and 75% taxable, letting you drip-feed income while the untouched remainder keeps its future tax-free element.
Will £350k Fund Your Retirement?
An annuity income of £13,650 plus the £12,548 State Pension produces about £26,198 a year. That sits within reach of the PLSA's moderate retirement standard for a single person – and a second State Pension in the household changes the picture again – though it remains some way from the £43,100 comfortable benchmark. Early-years drawdown can lift income above the annuity figure if you accept the risk.
Getting More From £350,000
- Push the retirement date back: later access means more growth, more contributions and fewer years to fund.
- Claim the State Pension later: deferral earns an uplift of about 5.8% for each year waited.
- Coordinate as a couple: two personal allowances and two basic-rate bands beat one.
- Blend products: a smaller annuity underneath a drawdown pot covers essentials without surrendering all flexibility.
- Keep reviewing the portfolio: the investment mix that built the pot is rarely the right one for spending it.
Passing On a £350k Pension
Money still inside drawdown does not die with you. Your nominated beneficiaries take over the fund – free of income tax entirely if you die before age 75, or paying their own marginal rate on withdrawals if you die later.
Annuity income, in contrast, normally ends at death. If continuing support for a partner matters, price up joint-life or guaranteed-period terms before you buy rather than regretting it afterwards.