State Pension: Understand qualifying years, deferral, and gap-filling with our UK State Pension Guide.
A £1 million pension pot drawn at 4% a year gives £40,000 a year before tax. Add the full new State Pension (£241.30 a week, about £12,548 a year) and the total is about £52,548 a year before tax. The 4% rate is an assumption this page uses to illustrate the arithmetic, not a guaranteed or recommended rate.
Income from £1 Million Pension
Annuity Option (Guaranteed Income)
An annuity is a product, usually bought from an insurance company, that gives you a guaranteed income for life. The amount depends on how long the insurer expects you to live and how many years it expects to pay you. Insurers take into account your age and gender, the size of your pot, interest rates and sometimes your health. Some annuities pay for a fixed time instead of for life, and some continue paying your spouse or partner after you die.
Because annuity rates change with interest rates and differ by provider and health, this page does not quote an annuity income for a £1 million pot. Providers can give you a quote, and you do not have to buy your annuity from your own pension provider.
Drawdown Option (Flexible)
The table applies three withdrawal rates to the starting pot. It is arithmetic only: it ignores investment returns, charges and tax, and an invested pot can fall as well as grow.
| Withdrawal Rate (Assumption) | Annual Withdrawal | Monthly Income |
|---|---|---|
| 3.5% | £35,000 | £2,917 |
| 4% | £40,000 | £3,333 |
| 5% | £50,000 | £4,167 |
Combined with State Pension
| Income Source | Annual Amount | Monthly Amount |
|---|---|---|
| State Pension (full) | £12,548 | £1,046 |
| Pension drawdown (4%) | £40,000 | £3,333 |
| Total | £52,548 | £4,379 |
Amounts are before tax. Your State Pension depends on your National Insurance record: if your record started after April 2016 you need 35 qualifying years for the full rate.
Is This Enough?
Retirement Living Standards (yearly costs, not income):
| Standard | Single | Couple | £1M at 4% Plus State Pension(s) |
|---|---|---|---|
| Minimum | £13,900 | £22,500 | ✓ Far exceeds |
| Moderate | £32,700 | £45,400 | ✓ Far exceeds |
| Comfortable | £45,400 | £62,700 | ✓ Exceeds (single and couple) |
For one person, £52,548 a year is about £7,148 above the comfortable cost. For a couple with two full State Pensions, £65,096 a year is about £2,396 above the comfortable cost for two. The standards are costs, not income, so tax may mean you need more.
How £1M Compares
| Benchmark | Amount | £1M vs |
|---|---|---|
| ONS median private pension wealth, ages 55–64 (April 2018 to March 2020) | £133,800 | About 7.5x |
| Pot for comfortable (single) at 4%: (£45,400 − £12,548) ÷ 4% | £821,300 | 122% |
| Pot for comfortable (couple) at 4%: (£62,700 − £25,096) ÷ 4% | £940,100 | 106% |
The ONS figure covers people with some private pension wealth and includes defined benefit pensions. The pot-for-comfortable figures are this page’s own arithmetic under the 4% assumption, with full State Pensions, not official targets.
Tax Considerations
At £40,000 pension + £12,548 State Pension = £52,548, using 2026/27 Income Tax bands for England, Wales and Northern Ireland (bands are different in Scotland) and the standard £12,570 Personal Allowance, and treating all of the income as taxable:
| Income Band | Amount | Tax Rate | Tax Paid |
|---|---|---|---|
| £0-£12,570 | £12,570 | 0% | £0 |
| £12,571-£50,270 | £37,700 | 20% | £7,540 |
| £50,271-£52,548 | £2,278 | 40% | £911 |
| Total Tax | £52,548 | — | £8,451 |
Net income after tax: £44,097/year or £3,675/month
Tax-Free Lump Sum Options
You can usually take up to 25% of a pension as a tax-free lump sum, up to a maximum of £268,275. The remaining 75% is usually taxed as income when you take it. On a £1 million pot, 25% is £250,000, which is under that cap.
| Option | Tax-Free | Remaining Pot | Annual Income (4%) |
|---|---|---|---|
| Full 25% | £250,000 | £750,000 | £30,000 |
| No lump sum | £0 | £1,000,000 | £40,000 |
| Partial £150K | £150,000 | £850,000 | £34,000 |
Couple’s Scenario (£1M + Two State Pensions)
| Source | Annual Income |
|---|---|
| Pension drawdown (4%) | £40,000 |
| State Pension (person 1) | £12,548 |
| State Pension (person 2) | £12,548 |
| Total | £65,096 |
This exceeds the couple’s “comfortable” standard of £62,700.
What the Comfortable Standard Covers
The Retirement Living Standards describe the comfortable lifestyle as the moderate one (an annual overseas holiday, a long weekend break in the UK, a takeaway a week and eating out a couple of times a month) plus extra-long weekends away in the UK, some day trips and more to spend on eating out and social activities. See average pension pot by age for all three standards.
Inheritance Considerations
Pension Death Benefits
| Age at Death | Payment | Tax Treatment |
|---|---|---|
| Under 75 | Most lump sums; annuity or new drawdown money from a defined contribution pot | Usually no tax, unless a lump sum is above the owner’s lump sum and death benefit allowance or is paid more than 2 years after the provider is told of the death |
| 75 or over | Most lump sums; annuity or drawdown money | Income Tax deducted by the provider |
At £1 million, inheritance planning becomes relevant. Unused pensions are generally outside the estate for IHT for deaths before 6 April 2027, but from that date most unused pension funds and death benefits count towards it.
Drawdown vs Annuity for Legacy
| Option | Death Benefit |
|---|---|
| Drawdown | Money left in the pot can be paid to the people you nominate |
| Annuity for life | Depends on the type of annuity you buy |
| Annuity that continues to a partner | Keeps paying your spouse or partner after you die |
Related Guides
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