HNWIs lose half their pension in tax

The UK’s wealthiest retirees paid themselves annual pension income of around £3m each last year but lost almost half of that in tax, according to figures published for the first time today. Titan Wealth Planning used an FOI request to obtain data from HMRC on taxable flexible pension payments. According to figures for 2023-24, the largest 25 annual pension incomes averaged £2,982,000, meaning those at the very top of the tree will likely have had pension income in excess of £3m. Derek Miles, chief executive of Titan Wealth Planning said: “Uncertainty over tax changes to pensions in the Budget has reportedly fuelled a surge in withdrawals in recent weeks. But analysis of these FOI figures illustrates the pitfalls of high-net-worth individuals making colossal drawdowns without the right counsel.” He said assuming there were no other income streams, someone taking annual pension income today of £3m would be looking at an eye-watering tax bill of £1,336,202, leaving them with take-home earnings of £1,663,798. In other words, they would lose almost half their windfall. Mr Miles said: “When you’ve spent a lifetime building a retirement super pot, it’s important to protect it by making the right type of withdrawal. A hurried decision could seriously damage your wealth.” The figures obtained by Titan under FOI rules relate to taxable flexible pension payments received by 1,010,000 individuals. Under flexi access drawdown, pension investors receive 25% of their pot tax-free in one go up to a cap of £268,275. The remaining amount can continue to grow in a drawdown fund. It can be withdrawn as the investor wishes but now counts towards their taxable income. Mr Miles added: “There may be perfectly valid reasons why high-net-worth individuals may wish to draw seven figure sums from their pots. Perhaps they wish to invest in a business, buy a yacht to sail around the world, or they may simply want to help their children get a foot on the housing ladder. “But withdrawing your money in large chunks can dramatically increase your tax liability and ultimately erode what you later pass on to the next generation.” According to the FOI data, there are approximately 8,000 retirees paying themselves £100,000+ from their pension pots annually including around 2,000 earning £200,000+. Approximately 39,000 are withdrawing pension income of £50,000+ annually. The average annual taxable income stood at £15,168. A pension investor paying themselves £100,000 from a private pot could expect to pay £27,431 in income tax and - assuming they had no other income streams - while a £50,000 pension income earner would lose £7,486 in take-home pay.

HNWIs lose half their pension in tax

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