What £750,000 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 £750,000, that is £30,000 a year (£2,500 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 | £30,000 | £3,486 | £26,514 | £2,210 |
| Take tax-free cash (£187,500), then 4% of the rest | £22,500 | £1,986 | £20,514 | £1,710 |
| Level annuity on the whole pot (7.0%) | £52,500 | £8,432 | £44,068 | £3,672 |
| Take tax-free cash, annuity on the rest (7.0%) | £39,375 | £5,361 | £34,014 | £2,834 |
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 £41,973 of gross income, a worker would lose £2,352 to NI that a retiree simply keeps. Drawing £30,000 from this pot with no other income leaves £26,514 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 | £41,973 | £5,881 | £36,092 | £3,008 |
| Level annuity (7.0%) + state pension | £64,473 | £13,221 | £51,252 | £4,271 |
On the combined 4%-plus-state-pension income of £41,973, 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% — £52,500 a year on this pot — with the best quoted rate at 7.86% (£58,950), 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 £187,500 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.
Three quarters of a million: the last all-basic-rate pot
£750,000 is roughly the largest pot whose 4% income stays comfortably in basic-rate territory alongside a full state pension: £41,973 gross nets to £36,092, all taxed at 20% or below, with a marginal rate of 20.0% on the next £1. The annuity route pays more gross — around £52,500 on the whole pot at typical July 2026 rates — but gives up flexibility and, for level annuities, inflation protection.
The £187,500 of tax-free cash opens genuine strategy choices: clear a remaining mortgage, gift to children (starting the 7-year IHT clock — see our inheritance tax pages), or drip it out to keep taxable income low. From April 2027, unused pension funds count toward your estate for inheritance tax under the Finance Act 2026, which weakens the old "spend everything else first, leave the pension" advice — pots this size should be part of the estate plan, not an afterthought to it.
Frequently asked questions
How much income will a £750,000 pension pot give me?
On the 4% sustainable-withdrawal guideline, £30,000 a year before tax. A single-life level annuity at 65 would pay roughly £52,500 to £58,950 a year at July 2026 rates (Retirement Line). Adding the full new state pension of £11,973 takes the drawdown route to £41,973 gross, about £36,092 after tax.
How much tax-free cash can I take from £750,000?
£187,500 — 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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