Financial Planning

Should you spend investments before your pension?

By April 12, 2021 No Comments

This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice please consult us here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

As a person approaches retirement it is common for them to have a wide range of investments, pensions and savings. These might include capital in ISAs (individual savings accounts), SIPPs (self-invested personal pensions), regular savings, various defined contribution pension pots and maybe even a final salary pension – e.g. from time spent serving in the police force. With so many options for drawing an income in retirement, which ones should you focus on first? Should you try and draw from all of them at once?

Below, our team at Elmfield Financial Planning in Padiham, Burnley, Lancashire outlines some of the benefits of spending savings/investments in retirement – before your pension. This is not a universal recommendation. Rather, it is intended to inspire your ideas and fuel useful discussion with your financial adviser. If you’d like to speak to an independent financial adviser then you can reach us via:

T: 01282 772938



#1 No age restrictions

In 2021-22, the UK’s pension rules state that you cannot usually access a defined contribution pension until you reach age 55 (expected to rise to 57 from age 2028). Savings and investments in an ISA, regular account or general investment account, however, have no such restriction. This can be particularly useful for people looking to retire early. In the meantime, you can leave your pension(s) invested to keep on growing.


#2 No contribution limit

Pension rules in the UK also place a limit on how much you can put into a pension. First of all, the “annual allowance” lets you contribute up to £40,000 per tax year, or up to 100% of your earnings (whichever is lower). Secondly, the “lifetime allowance” lets you save up to a maximum of £1,073,100 in your pension pots. With other savings and investments, however, there is no limit. Moreover, it’s important to be aware of the Money Purchase Annual Allowance rules (MPAA). In many situations when you access your pension(s), these rules are triggered – which then lowers your annual allowance to £4,000 per year. Generally, it is best to delay triggering these rules until later, when you absolutely must. Drawing from other investments and savings in the meantime allows you to do this.


#3 Inheritance tax benefit

Many people assume that, when you die, all of your possessions, property and investments are subject to inheritance tax (IHT) – including pensions. However, in 2021-22 this is not the case. Defined contribution pension pots can be passed on to beneficiaries without attracting an IHT charge. This can make pensions a very useful tool for estate planning purposes, as well as for retirement planning.


ISAs, regular savings and general investment accounts are generally subject to IHT when the owner passes – with only a few exceptions (e.g. EIS shares which you have held for at least 2 years). In 2021-22, IHT stands at 40% on the value of your estate after you have exceeded your tax-free threshold (£325,000), so these savings and investments could stand to be significantly eroded by the time you hope to pass your wealth down to your loved ones. By spending these earlier on in retirement, therefore, you can keep your pension(s) invested – which will eventually be passed down, IHT-free. However, bear in mind that many pensions cannot be passed down to children as an inheritance (e.g. most final salary pensions). Moreover, there is still an income tax consideration for your beneficiaries. If you die after the age of 75, for instance, then any pot passed down to a loved one will be subject to income tax at their marginal rate.


#4 Tax-efficient growth

Generally speaking, the longer you can keep saving into a pension the better. This is because pension contributions receive tax relief equivalent to your highest rate of income tax – a benefit which other investment vehicles do not enjoy. For instance, a Higher Rate taxpayer only “pays” 60p to put £1 into their pension due to their 40% tax bracket. For someone on the Basic Rate, they can still enjoy a nice 20% boost to their own contributions. This tax relief can be viewed as an extra return on your investment – on top of any compound growth the contributions might achieve over the course of years, or decades. Moreover, as long as any money is invested in your pension pot, it is not subject to tax.



Pensions are a powerful retirement planning tool where the benefits are often realised later. In the meantime, other savings and investments can be a useful way to support your retirement lifestyle – particularly if you are thinking about early retirement. However, it is important to note that everyone comes with a distinct set of financial goals, needs and circumstances. There are often instances where it is appropriate to take a different approach.

If you are interested in starting a conversation about your own financial plan or investments, then we’d love to hear from you. Please contact us to arrange a free, no-commitment consultation with a member of our team here at Elmfield Financial Planning in Padiham, Burnley, Lancashire.

Reach us via:

T: 01282 772938