Phased Pension Drawdown

Why the Jammie Dodgers?

I have found that people have always thought of pensions as two dimensional. We all have seen the pension pie chart diagram which shows a quarter available as tax-free cash. Well it’s not the best way to describe how you can take the benefits out of your pension savings pot.


What does the biscuit depict?

The biscuit is your pension fund which needs to last you for the rest of your life. It must be slowly nibbled one bit at a time.

Is the jam the tax-free cash then?

Correct. The jam can be eaten all at once. Show me a kid who has never scooped all the jam out in one go before nibbling the biscuit. Or was I the only kid to do it? The jam is the best bit. You never shared that bit, but anyone could have a bite of your biscuit. That anyone is the tax man. He wants one bite for every five bites you take. If you are a higher rate tax-payer he will want two bites for every five bites you take. Just greedy if you ask me.

But why the full packet of biscuits?

Well that is the three dimensional part that many people don’t understand. You could never eat a full packet of Jammie Dodgers at one sitting (or could you?). Well like a packet of biscuits, you don’t have to consume all your pension at one sitting. You can eat them in several ways.  You can:

  • Eat all the jam first out of every biscuit.  That means you take the best first.  The full 25% tax-free cash in one go to spend on a one-off purchase or repay a debt like the balance of your mortgage.
  • Eat the jam out of only a few of your biscuits at an annual sitting.  This can top-up your income in the latter years of work whilst you slow yourself down to retirement. You won’t pay tax on this additional amount as it is tax-free cash
  • Eat the jam out of several biscuits and also start to nibble on them, remembering the tax man wants a nibble for every five of yours.  But you may not have to share if you have ceased working and have no other income and your nibbles are less than around £10,000 per year.  Another blog to explain that one.
  • Do the traditional thing.  Take all the jam out in one sitting and immediately start to take a nibble out of each and every biscuit, not forgetting to give the tax man one bite out of every five of yours. Traditional with regard to a pension, but plain strange if you are eating Jammy Dodgers if you ask me.
Which choice is best for me?

That depends on the size of your fund and the size of your tax bill and what other sources of income you may have in retirement. This is where individual advice is needed.

Hang on. The jam doesn’t go right through a Jammie Dodger does it?

Oh no you have got me. It doesn’t really portray 25% tax-free cash, more like 12.5% tax-free cash because the bottom biscuit in the sandwich doesn’t have a hole in it. Of course it doesn’t, because if it did the jam would just fall out. Also the Jammie Dodgers I used to eat came in a flat packet of 12, not in a tube, but I have taken artistic licence here too. So taking benefits from a pension is like eating a packet of Jammie Dodgers (sort of).