Income Drawdown – Defined Contribution Pension to a SIPP

Pensions Horizons - investments portfolio services and investment reviews
Investments, Portfolio Services and Investment Reviews
9th October 2018
Early retirement - Lady enjoying the coast on a swing
Early Retirement
9th October 2018
Income Drawdown


Chris is at retirement age and has chosen to take benefits from his two Defined Benefit pension schemes. He wanted to understand the benefits of a flexible income from his Defined Contribution pension to cover the cost of his preferred lifestyle throughout retirement.

Chris is 62 and has worked in Local Government for several years. Anne is 56 and works within the Administration department of a local University. Chris is ready to retire and has the option of receiving £12,500 income from his employers Defined Benefit pension scheme, or a Tax-Free Lump sum and reduced income. Anne is concerned that her pension provision is limited as she hasn’t been contributing to the University pension scheme for long.

The couple own a home worth £375,000 with no mortgage. They have approximately £79,000 in cash deposits and cash ISA’s.

Chris previously transferred an ex employer Defined Benefit pension scheme to a personal pension. The pension is valued at £415,000.

Godiva Wealth Management specialises in providing a professional, high quality, bespoke advice service to both private and corporate clients


Chris was ready to retire and begin drawing an income from his Defined Benefit scheme and Personal Pension. Anne was happy to continue working for a few more years.

The clients wanted to understand what their cost of living in retirement would be and how they would meet this with their pensions.

Chris anticipated his expenditure to be higher than usual during the early years of his retirement because they had planned a number of expensive holidays.

Chris expected to draw the full Tax-Free Cash component (£103,750) of his personal pension to use during the early years of retirement and to purchase an annuity with the residual fund to provide an income for life.


At Godiva Wealth Management, we completed a budget planner and established that Chris and Anna needed £27,500 for the first year to cover their desired lifestyle. We discussed their attitude to investment risk, their investment experience and their capacity for loss; all in order to ensure any recommendations were suitable.

We concluded that they should take the following actions:

• Chris should choose the higher income option from his Defined Benefit pension scheme of approx. £12,500 as they had enough capital held on deposit and Cash ISAs (in a low interest environment). The income would rise each year in line with inflation. An annual £12,500 would cover essential expenditure for the couple during the early years of retirement.

• Transfer Chris’s Defined Contribution Pension to a SIPP and crystalise £15,000. This would enable a taxable phased income of £11,750 per annum and Tax-Free Cash of £3750, to be used for one year’s discretionary income shortfall.



We secured enough income for Chris and Anne to cover the cost of their desired lifestyle.

By not taking the full tax-free lump sum in one go, Chris has retained these funds in a tax-efficient environment suited for longer-term growth.

On an annual basis Chris will decided how much income he needs for the year and will continue with this strategy for the foreseeable future.

Chris will have the option to convert to a lifetime annuity at any time, if he requires this.

Chris will retain control of his fund and ensure that Anne can access the pension ‘pot’ for income if he should die prematurely, thereby providing valuable pension benefits for Anne and potential future generations.