What £300,000 pays under the 4% guideline
The most widely used planning yardstick for turning a pot into income is the 4% guideline, popularised by US financial planner William Bengen's 1994 research: draw 4% of the pot in year one and adjust for inflation, and a balanced portfolio has historically lasted a 30-year retirement. On £300,000, that is £12,000 a year (£1,000 a month) before tax. It is a guideline rather than a promise — UK research often lands slightly below 4% for cautious portfolios — but it anchors the comparison below.
| Strategy | Gross income/yr | Income tax | Net/yr | Net/mo |
|---|---|---|---|---|
| 4% drawdown on the whole pot | £12,000 | £0 | £12,000 | £1,000 |
| Take tax-free cash (£75,000), then 4% of the rest | £9,000 | £0 | £9,000 | £750 |
| Level annuity on the whole pot (7.0%) | £21,000 | £1,686 | £19,314 | £1,610 |
| Take tax-free cash, annuity on the rest (7.0%) | £15,750 | £636 | £15,114 | £1,260 |
Annuity figures use a typical single-life, level rate at age 65 of 7.0% — Retirement Line's July 2026 tables quote a best rate of 7.86% (Aviva) and Which? cites around £7,000 per £100,000. Annuity quotes are personalised; these are illustrations, not advice.
How the income is taxed
Drawdown income and annuity payments are taxed as ordinary income against 2025/26 bands (thresholds frozen to 2028): nothing on the first £12,570, 20% to £50,270, 40% above. Crucially, pension income pays no National Insurance — on £23,973 of gross income, a worker would lose £912 to NI that a retiree simply keeps. Drawing £12,000 from this pot with no other income leaves £12,000 net; the tax numbers change once the state pension joins.
Adding the state pension
The full new state pension is £11,973 a year (£230.25 a week) in 2025/26 (GOV.UK). It is taxable and uses up most of the personal allowance, so it pushes the effective tax rate on your drawdown up even though the state pension itself arrives gross:
| Combined income | Gross/yr | Income tax | Net/yr | Net/mo |
|---|---|---|---|---|
| 4% drawdown + state pension | £23,973 | £2,281 | £21,692 | £1,808 |
| Level annuity (7.0%) + state pension | £32,973 | £4,081 | £28,892 | £2,408 |
On the combined 4%-plus-state-pension income of £23,973, the marginal rate on the next £1 drawn is 20.0% — worth knowing before taking ad-hoc lump sums on top.
The annuity alternative
An annuity swaps the pot for a guaranteed income for life. At July 2026 rates a healthy 65-year-old buying a single-life level annuity gets about 7.0% — £21,000 a year on this pot — with the best quoted rate at 7.86% (£23,580), per Retirement Line's rate tables; rates are near multi-decade highs on the back of higher gilt yields. The catches: a level annuity never rises, so inflation erodes it; single-life versions stop at death; and the purchase is irreversible. Many retirees mix the two — annuitise enough to cover fixed bills, keep the rest in drawdown.
The 25% tax-free lump sum
From age 55 (57 from April 2028) you can take £75,000 of this pot completely tax-free. That is 25% of the pot, within the £268,275 Lump Sum Allowance cap. Taking it all up front is not compulsory: slicing it out gradually (or using UFPLS withdrawals, each 25% tax-free) keeps more money invested in the pension's tax shelter and can smooth your tax bill across years.
Is £300,000 enough to retire on?
On its own, a £300,000 pot is modest: £12,000 a year on the 4% guideline, or about £21,000 as a level annuity. But almost nobody retires on a private pension alone. Add the full new state pension of £11,973 and the drawdown route delivers £23,973 gross — £21,692 after tax, or £1,808 a month. That is a liveable single-person income in much of the UK, particularly mortgage-free, though it leaves little slack for large one-off costs.
The order of operations matters at this size. The £75,000 of tax-free cash is a quarter of the pot; taking it all at once parks a lot of money outside the pension's tax shelter where it earns taxable interest. Many people at this level do the opposite — leave the pot invested and use UFPLS-style withdrawals where each slice is 25% tax-free and 75% taxable, spreading the tax-free element across decades rather than banking it on day one.
Frequently asked questions
How much income will a £300,000 pension pot give me?
On the 4% sustainable-withdrawal guideline, £12,000 a year before tax. A single-life level annuity at 65 would pay roughly £21,000 to £23,580 a year at July 2026 rates (Retirement Line). Adding the full new state pension of £11,973 takes the drawdown route to £23,973 gross, about £21,692 after tax.
How much tax-free cash can I take from £300,000?
£75,000 — 25% of the pot, comfortably within the £268,275 Lump Sum Allowance. You can take it in one go or in slices alongside taxable withdrawals.
Do I pay National Insurance on pension income?
No. Pension income (drawdown, annuities and the state pension) is subject to income tax but not National Insurance — so a retiree keeps more of the same gross income than a worker does.
Is the 4% rule safe in the UK?
It is a guideline, not a guarantee. It comes from US research (William Bengen, 1994) assuming a 30-year retirement and a US portfolio; UK studies often suggest slightly lower safe rates for cautious investors. Flexible spending — cutting withdrawals after bad market years — materially improves the odds.
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