Guy at the Gym - And the £47,000 Pension Mistake
The other day, between sets of picking up heavy metal objects and putting them back down again, I was chatting to a guy at the gym who knows I am a financial planner and he wanted to run a thought past me.
He’s planning to retire next year, and said he was going to take all his tax-free cash from his pension to live on until his State Pension kicks in, as he has a "decent pot and no other income, and about thirty grand in the bank", and he did not want to use the full thirty grand to support himself.
I asked him where the idea came from. He told me a “financial adviser” visits his workplace every year and answers questions for the team. That’s what they’d suggested.
Now, the option they explained isn’t wrong. But it was given with no personal context, and that’s the problem.
This was advice — but it wasn’t financial planning.
Advice vs Planning — There’s a Difference
Advice is often focused on what you can do.
Planning focuses on what makes the most sense for you, based on your full situation — income needs, other assets, tax position, retirement goals, and more.
The workplace adviser gave him a product-based answer: “You can take 25% of your pension tax-free. Use that to live on.”
What they didn’t explain was:
The tax impact of that approach down the line
The loss of flexibility once that tax-free cash is gone
The existence of a better alternative that uses the pension more efficiently — without paying a penny in tax
So let’s walk through it, with real numbers.
A Common Situation — Two Very Different Outcomes
Let’s say this guy retires at 63 with:
£250,000 in his pension
£30,000 in savings
No other income until State Pension starts at 67 (roughly £12,000 per year)
He wants £20,000 a year to live on for the next four years — so that’s £80,000 total.
🟠 Option 1: The Lump Sum Strategy
He takes his full 25% tax-free lump sum — that’s £62,500 — and uses it to live on.
That covers the first three years. In year four, he uses £17,500 from savings to get him through.
At age 67, he’s left with:
£187,500 in his pension — but 100% taxable
£12,500 in savings
And no tax-free cash remaining
He then uses his State Pension (still roughly £12,000 per year in today's money but gone up with triple lock) and taxable withdrawals from his pension to cover future income.
Not terrible. But it’s not the most efficient route either.
🟢 Option 2: The UFPLS Method (Smarter Planning)
Instead of taking the full lump sum up front, he uses UFPLS — short for Uncrystallised Funds Pension Lump Sum.
Here’s how it works:
Each time he takes a UFPLS withdrawal, 25% is tax-free, and the other 75% is taxable. But if the taxable bit stays within his personal allowance (currently £12,570), he pays no tax at all - (this assumes he has no other taxable income)
So each year, he draws £16,760 from the pension:
£4,190 is tax-free
£12,570 is taxable — but falls within the allowance, so zero tax
He then tops it up with £3,240 from savings to reach £20,000 total
He repeats this for four years.
At age 67, here’s where he ends up (for ease, we are assuming no growth, or loss on the investment values):
£182,960 left in his pension
£17,040 in savings
And most importantly — £45,740 of tax-free cash still available
All while living on the same £20,000 per year
Side-by-Side Comparison
Same lifestyle. Same spending. But one route leaves you with more flexibility, more future tax-free cash, and more savings in the bank.
And here’s the bonus: If the pension grows back to £200,000 over time, the 25% tax-free lump sum grows too — back up to £50,000.
What’s the Lesson?
That workplace adviser gave an answer based on what was possible.
But it wasn’t personal. It wasn’t tailored. And it wasn’t the most effective strategy.
This is the difference between financial advice and financial planning.
Planning means asking the right questions, understanding your goals, and designing a solution that gives you more value — not just a product.
It’s not just what you’ve saved. It’s how you use it that counts.
This article is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.
The value of pensions and any income from them can fall as well as rise. You may not get back the full amount invested.
Drawdown pension plans (unsecured income) are complex and are not suitable for everyone. Pension decisions can affect your income for the rest of your life (and that of any partner and other dependants). Where benefits are accessed on a flexible basis, these are not fixed or safeguarded for life. If security of income is important to you then you should consider purchasing an annuity or taking a scheme pension to provide a secured level of income.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.