An Individual Savings Account (ISA) is a tax-efficient way for UK residents to save or invest. You don’t pay tax on any interest, dividends, or capital gains earned within an ISA.

Each tax year (from 6 April to 5 April), you can pay in up to £20,000 across your ISAs. You can split this between different types, but only contribute to one of each type per year. All growth or returns within the ISA are tax-free.

A Lifetime ISA (LISA) is for people aged 18 to 39 saving for their first home or retirement. You can contribute up to £4,000 per year, and the government adds a 25% bonus—up to £1,000 annually. Withdrawals are tax-free when used for your first home or after age 60; otherwise, a penalty applies.

A Cash ISA is a good option if you want low-risk savings with tax-free interest. It's suitable for short- or medium-term goals like an emergency fund, and offers instant access or fixed-rate deals depending on your needs.

A Stocks & Shares ISA lets you invest in a wide range of assets, such as funds, shares, bonds, and ETFs, with all gains and income tax-free. This means you don't pay Capital Gains Tax or Income Tax on any returns within the ISA.

Over the long term, investments in a Stocks & Shares ISA have the potential to deliver higher returns than cash savings, especially if you're comfortable with short-term ups and downs. It may also provide protection against inflation eating away at the value of cash savings.

You can choose your own investments or use ready-made portfolios based on your risk level. All growth, dividends, and withdrawals are free from UK tax, which makes it a powerful way to grow wealth over time.

ISAs can support retirement planning by offering tax-free withdrawals and no restrictions on when you can access the money. They’re useful for managing income, topping up your pension, or reducing tax bills during retirement.

Here are a few ways you can use ISAs alongside your pension strategy:

• Bridge the gap: Use ISA savings to retire before your pension becomes accessible (typically before age 55–57).
• Control taxable income: Withdraw from ISAs instead of pensions to stay below income tax or benefit thresholds.
• Maximise flexibility: Use pensions for long-term needs and ISAs for short/medium-term spending.
• Tax-efficient withdrawals: Combine ISA withdrawals with tax-free pension lump sums for a balanced drawdown strategy.

For the 2025/26 tax year, the total ISA allowance is £20,000. This can be split between different types of ISA but the maximum for a Lifetime ISA is £4,000.

The Retirement Living Standards website offers a practical framework to help you estimate the income needed for your desired lifestyle in retirement. The standards show you what life in retirement looks like at three different levels: Minimum, Moderate and Comfortable and what a range of common goods and services would cost for each level.

The Retirement Living Standards were developed using the Minimum Income Standard (MIS) methodology by the Centre for Research in Social Policy at Loughborough University, on behalf of the Pensions and Lifetime Savings Association (PLSA).

This approach is grounded in public consensus, not expert opinion. A total of 249 people over age 50—retired and not-yet-retired—took part in detailed group discussions across the UK. They agreed on what goods and services are needed for the three different lifestyles in retirement: Minimum, Moderate, and Comfortable.

Each lifestyle was defined through “baskets” of items like food, transport, clothing, holidays, and social activities. For example, at the Comfortable level, participants included frequent holidays, branded groceries, and regular dining out. The Moderate level included some financial flexibility and modest treats, while the Minimum level covered essentials with limited extras.

These baskets were then costed using real-world prices from actual retailers. The resulting figures were converted into weekly and annual income requirements, with separate figures for singles and couples, and for London and the rest of the UK.

The net retirement income required each year for each of the three standards of living for 2025 is as follows:

The equivalent monthly income levels are:

• DIY maintenance (£100/year) to maintain the condition of your property
• £50/week on groceries
• £25/month eating out, £15/fortnight on takeaways
• No car; £10/week taxis and £100/year rail fares
• One week UK holiday
• Basic TV, broadband and one streaming service
• Up to £630/year for clothing and footwear
• £20 per gift, £50/year to charity

• Some help with maintenance and decorating each year
• £55/week on groceries
• £30/week eating out, £10/week on takeaways
• £100/month to treat others
• 3-year-old car replaced every 7 years
• £20/month taxis and £100/year rail fares
• 2-week 3* Mediterranean holiday and one UK break
• Basic TV, broadband and two streaming services
• Up to £1,500/year for clothing and footwear
• £30 per gift, £200/year to charity, £1,000 for family support

• Replace kitchen and bathroom every 10–15 years
• £70/week on groceries
• £40/week eating out, £20/week on takeaways
• £100/month to treat others
• 3-year-old car replaced every 5 years
• £20/month taxis and £200/year rail fares
• 2-week 4* Mediterranean holiday and three UK breaks
• Extensive broadband and TV subscription
• Up to £1,500/year for clothing and footwear
• £50 per gift, £25/month to charity, £1,000 for family support

The retirement living standards are a useful guide to typical spending in retirement, but you should be aware that certain items are not included in the figures:

• Housing: The figures assume that retirees own their home outright and are not making rent or mortgage payments. Anyone who expects to pay for housing in retirement will need to factor those additional costs in separately.
• Care costs: No allowance is made for personal or residential care costs. These can be substantial in later life, so separate planning is needed if care might be required.
• Tax: The expenditure amounts are presented on an after tax basis. This means they reflect what retirees might spend, not what their gross income from their pension needs to be.

While the retirement living standards offer a helpful benchmark, there are important limitations to keep in mind:

• They might not align with individual spending habits: The standards assume certain levels of spending that may not suit everyone. For example, someone who has always lived frugally may find the suggested figures unnecessarily high. In general, people’s spending habits tend to remain consistent throughout their lives.
• They are averages, not individuals: The figures represent averages across the population, but an average is just a statistical measure—not a person. Relying on averages for retirement planning can be misleading, as they may not reflect the diverse needs and personal circumstances of real individuals.
• They are just a starting point for a conversation: The standards are not definitive or prescriptive. Instead, they should be seen as a helpful "stake in the ground" to begin thinking about retirement income. They are best used as a tool to guide discussions, with proper financial planning tailored to each individual’s goals and situation.

You can adjust the standards of living income requirements for my own circumstances using the Retirement Budget Calculator.

• You can select a Minimum, Moderate or Comfortable standard for each category of spending — or specify an exact figure using sliders.
• This provides a quick and easy way to allow for your own personal circumstances and preferences without already having a budget, while still using the Retirement Living Standards as a foundation.
• This tailored income target feeds directly into a comparison with your calculated affordable income, allowing you to see if you are on target and to adjust your plans accordingly.

Income tax is a tax on earnings from salary, self-employment, pensions, and other income. There are several bands that are taxed at different rates. These are the bands for the 2025/26 tax year in England, Wales, and Northern Ireland:

• Personal Allowance (0%) — no tax on income up to £12,570
• Basic rate (20%) — for income from £12,571 to £50,270
• Higher rate (40%) — for income from £50,271 to £125,140
• Additional rate (45%) — for income over £125,140

If you earn over £100,000, your Personal Allowance is gradually reduced — for every £2 of income above £100,000, you lose £1 of allowance — meaning it is fully removed at £125,140.

Scotland has different income tax bands and rates from the rest of the UK, set by the Scottish Parliament. These are the rates for the 2025/26 tax year:

• Personal Allowance (0%) — no tax on income up to £12,570
• Starter rate (19%) — for income from £12,571 to £15,397
• Basic rate (20%) — for income from £15,398 to £27,491
• Intermediate rate (21%) — for income from £27,492 to £43,662
• Higher rate (42%) — for income from £43,663 to £75,000
• Advanced rate (45%) — for income from £75,001 to £125,140
• Top rate (48%) — for income over £125,140

The gradual reduction of the Personal Allowance above £100,000 still applies in Scotland, just as it does in the rest of the UK.

National Insurance is a tax paid by employees, employers and the self-employed. It helps fund state benefits such as the state pension, statutory sick pay, and maternity leave. The amounts to be paid are calculated as follows:

• Employees — 8% on earnings between £12,570 and £50,270, and 2% on earnings above £50,270.
• Self‑Employed — 6% on profits between £12,570 and £50,270, and 2% on profits above £50,270.
• Employers — 15% on employee earnings above £5,000 per year.

Pension tax relief is a government incentive to encourage people to save for retirement. It means some of the money that would have gone to the government as tax is instead added to your pension pot.

• Basic rate relief (20%) — for every £80 you contribute, the government adds £20, making it £100 in your pension.
• Higher rate relief (40%) — for every £60 you contribute, the government adds £40, making it £100 in your pension. This is why pensions are such a good deal if you are a higher rate tax payer, particularly if you are likely to be a basic rate taxpayer in retirement.
• Annual allowance — you can contribute up to £60,000 a year (or 100% of your earnings if lower) and still get tax relief. This allowance is reduced for earners above £260,000.

How you claim depends on how much you earn and the type of pension scheme you have. It may happen automatically.

• Workplace Pensions — Contributions are taken from your pay before tax is applied. In this case, full tax relief is automatic, even for higher earners, and you don’t need to claim anything.
• Basic rate taxpayers (20%) — For personal pensions, your provider will automatically claim the 20% tax relief from HMRC and add it to your pension. You don’t need to do anything.
• Higher rate taxpayers (40%) — You can claim the extra tax relief above the basic rate through your Self Assessment Tax Return.

Yes, in most cases you can take part of your pension tax free when you start to access it. This is known as the tax-free lump sum or pension commencement lump sum (PCLS).

• Up to 25% tax free — You can usually take up to 25% of your pension pot tax free. The remaining 75% is taxed as income when you withdraw it.
• Flexible access — You don’t have to take it all at once. Some people take smaller amounts over time, with 25% of each withdrawal being tax free.
• Defined benefit pensions — If you have a final salary or career average pension, the tax-free lump sum is usually calculated differently and may reduce your annual income from the scheme.
• Lifetime allowance — There is a lifetime limit of £268,275 on how much you can take tax free across all your pensions.

Your state pension is treated as taxable income, but it's paid to you without any tax deducted at source. Whether you pay tax on it depends on your total income from all sources.

• Tax-free allowance — Most people can earn up to £12,570 a year (the Personal Allowance) before paying income tax. Your state pension counts towards this total.
• If state pension is your only income — You probably won’t pay any tax, as it’s usually below the Personal Allowance threshold.
• If you have other income — For example, from a private pension, salary, or savings, your state pension may push your total income above the tax-free limit. HMRC will adjust your tax code to collect tax through one of your other income sources.

Carry forward is a pension rule that allows you to make contributions above the standard annual allowance by using any unused allowance from the previous three tax years — provided you were a member of a UK-registered pension scheme in those years.

• Annual allowance — The current annual allowance is £60,000 (for 2025/26). You can use carry forward to exceed this limit and still receive tax relief. The annual allowance is reduced for high earners. For every £2 of adjusted income above £260,000, the allowance reduces by £1, down to a minimum of £10,000.
• Using unused allowance — If you didn’t use your full annual allowance in the previous three tax years, you can add the leftover amount to this year’s allowance.
• Eligibility — You must have sufficient earnings to cover the total contribution, and you cannot use carry forward if have already started taking income from the taxable part of your pension fund.

Lump sum recycling refers to a situation where someone takes a tax-free lump sum from their pension — known as the Pension Commencement Lump Sum (PCLS) — and then reinvests some or all of it back into their pension to gain additional tax relief. HMRC has strict rules to prevent this from being used to gain unfair tax advantages.

• What counts as recycling? — If you take a PCLS and then significantly increase your pension contributions, HMRC may view this as recycling, especially if it was planned in advance.
• 30% Threshold — If your total pension contributions increase by more than 30% of what you were previously contributing, and this is linked to having taken a lump sum, it may trigger anti-recycling rules.
• £7,500 Threshold — The recycling rules do not apply if the PCLS payment, combined with any other PCLS payments in the previous 12 months, does not exceed £7,500
• Consequences — If HMRC deems that you have recycled a PCLS, the lump sum could be taxed in full, removing the usual 25% tax-free benefit.
• Planning matters — The recycling rules only apply if there was an intention to recycle at the time the lump sum was taken. Genuine changes in financial circumstances may not be affected.

For defined contribution pensions, your main choices are:

• Take a Tax-Free Lump Sum - you can draw up to 25% of your pension pot at retirement.
• Buy an Annuity - convert the remainder into a guaranteed income for life by purchasing an annuity.
• Drawdown - keep your pot invested and withdraw income as needed.
• Take a number of tax free lump sums using the Uncrystallised Funds Pension Lump Sum (UFPLS) arrangement, 25% of every future withdrawal is tax-free.
• Combine these options to create a retirement income strategy that suits your lifestyle and goals.

For defined benefit pensions, you only really have two choices:

• Take a Tax-Free Lump Sum - most schemes allow you to take a tax-free lump sum. As there is no individual fund for a defined benefit pension, the amount will be related to the annual pension you are entitled to. This makes sense because the tax-free benefit will be lost if not taken.
• Delay Retirement - this should result in a higher pension being paid at a later date.

Pension Wise is a free, government-backed guidance service that helps you understand your pension options and make informed choices. It can be accessed here here.

An annuity is a insurance product you can buy with some or all of your pension pot. It gives you a guaranteed income for life (or for a fixed period), no matter how long you live. There are several options you can choose when setting one up, depending on your needs and preferences:

• Lifetime annuity — Pays you a regular income for the rest of your life. This is the most common type and is useful if you want certainty and simplicity.
• Fixed-term annuity — Pays you an income for a set number of years. At the end of the term, you may get a lump sum back (called a “maturity value”) or choose what to do next.
• Single or joint annuity — A single annuity pays income only to you. A joint annuity continues to pay income to your spouse or partner after you die, usually at a reduced rate (e.g. 50%).
• Level or increasing income — A level annuity pays the same amount every year. An increasing annuity rises each year—either by a fixed percentage (e.g. 3%) or in line with inflation (CPI or RPI). Increasing annuities start lower but help protect your income from rising living costs.
• Guarantee period — You can choose a guarantee (e.g. 5 or 10 years), which means the income will be paid for that time even if you die early. If you die within the guarantee period, the remaining payments go to your estate or chosen beneficiary.

Note: Once you buy an annuity, the decision is usually permanent. It’s important to shop around for the best rates and options using the open market. Your health and lifestyle can also affect the income you’re offered—some people qualify for a higher ‘enhanced annuity’ if they have certain conditions.

• Guaranteed income for life — An annuity provides a steady, predictable income for the rest of your life, removing the worry of outliving your savings.
• Peace of mind — Knowing your basic expenses are covered by a reliable income can reduce stress and make budgeting much easier in retirement.
• Optional features — Some annuities offer inflation protection or payments to a partner after your death, although these may reduce your starting income.
• No investment risk — Once you buy an annuity, your income is secure and unaffected by market ups and downs.

• No flexibility — Once you buy an annuity, you usually can’t change or cancel it, even if your circumstances or income needs change later on.
• Inflation risk — If you don’t choose an annuity that increases with inflation, the real value of your income may fall over time as prices rise.
• Low rates — Annuity rates depend on interest rates and life expectancy. If you buy when rates are low, your income could be less than expected.
• No inheritance — Unless you choose specific features, such as a spouse’s pension or a guaranteed period, payments usually stop when you die and nothing is left to pass on.

Pension drawdown (also known as flexi-access drawdown) is a way of taking money from your pension pot while keeping the rest invested. Instead of buying an annuity, you leave your pension invested and withdraw income as and when you need it.

• Take tax-free cash — You can usually take up to 25% of your pension pot tax-free, either all at once or in smaller chunks as you go.
• Flexible withdrawals — You choose how much income to take and when. You can vary the amount each year or stop and start as needed. This gives you more control compared to a fixed annuity.
• Keep your money invested — The part of your pension that you don’t withdraw stays invested, which means it can continue to grow tax-free.
• Be aware of investment risk — Because your pension remains invested, its value can go down as well as up. You take on the risk that your money might not last as long as you need it to, especially if markets fall early in retirement.
• Ongoing decisions required — You’ll need to make regular choices about how your pension is invested and how much to withdraw.
• Leave money to loved ones — Any remaining pension pot when you die can be passed on, but will be subject to inheritance tax from April 2027.

• Flexible access to your money — Pension drawdown lets you choose how much income to take and when, allowing you to tailor withdrawals to suit your lifestyle and spending needs.
• Potential for growth — Because your pension remains invested, there’s a chance your pot could continue to grow, especially if markets perform well.
• Tax-efficient planning — You can manage how and when you take income to minimise your tax bill, for example by staying within your personal allowance or avoiding higher tax bands.
• Leave money to loved ones — Any unspent funds can be passed on to beneficiaries, making drawdown a good option if leaving an inheritance is important to you.
• More responsibility — You’ll need to keep track of how much you’re withdrawing and ensure your money lasts. If markets fall or withdrawals are too high, your pot could run out.

• Investment risk — Your pension pot stays invested, so it can fall as well as rise. Poor market performance could reduce your retirement savings.
• Longevity risk — If you live longer than expected and withdraw too much too soon, you could run out of money later in retirement.
• Complexity — Managing drawdown involves ongoing decisions about investments and withdrawals. It may require regular reviews or financial advice.
• Tax risk — Large or irregular withdrawals could push you into a higher tax bracket, resulting in a bigger tax bill than expected.
• Emotional impact — Seeing the value of your pot fall during a downturn can be stressful, especially if you're relying on it for income.

• To spend it: You might want to use your tax-free cash to enjoy life—perhaps for a once-in-a-lifetime holiday, a new car, or simply to make the most of your first year in retirement while you're still fit and active.


• To pay off debts: Using tax-free cash to clear debts—especially a mortgage—can offer a guaranteed return equivalent to the interest saved.


• Ongoing tax efficiency: Taking tax-free cash can give you greater income flexibility and reduce future tax. Moving the tax-free cash into an ISA and using the ISA for flexible additional income helps you to avoid moving into higher rate tax bands in the future.


• To contribute to your spouse’s pension: Taking tax-free cash and contributing it into your spouse’s pension (within their annual allowance) can be very tax-efficient—especially if they’re a higher or additional rate taxpayer.


• To hedge against future legislative changes: Pension rules can change. Taking some tax-free cash now and moving it into an ISA or other wrapper may help protect against unfavourable changes. However, this strategy is speculative and should be balanced against the long-term tax benefits of leaving money in the pension.


• Because of a shorter life expectancy: If your health suggests a shorter-than-average lifespan, taking tax-free cash sooner can help you use and enjoy your money while you can. It's wise to seek financial advice in such cases to ensure you're making a sustainable decision.

• You need more income: Pensions are designed to generate income. If you take the full tax-free cash upfront, you reduce the size of your remaining pension fund, or your future guaranteed income if you have a defined benefit pension.


• You would benefit from tax-free income over time: You don’t have to take all your tax-free cash in one go. Instead, you can take it gradually, allowing a portion of each pension withdrawal to be tax-free. This arrangement is known as Uncrystallised Funds Pension Lump Sums (UFPLS). It can be very efficient when combined with other income sources like a state pension or rental income, helping to keep your overall tax bill lower across retirement.


• Leaving the tax-free portion invested may grow it further: If you delay taking tax-free cash and leave your pension invested, the 25% portion you're entitled to could increase in value as your fund grows. This means more tax-free cash could be available to you later.

If you have a defined contribution pension, you can take your money as a series of lump sums rather than buying an annuity or going into drawdown. This option is called Uncrystallised Funds Pension Lump Sums (UFPLS) and can be very tax efficient. Here's how it works:

• Withdrawals: UFPLS payments are taken directly from uncrystallised pension funds, where the money is still invested and hasn't been moved into drawdown.


• Tax treatment: Each UFPLS payment is split: 25% is tax-free, while the remaining 75% is added to your taxable income for the year..


• Impact on future contributions: Taking UFPLS will limit the amount of pension contributions you can make in the future. It usually reduces your annual DC pension contribution limit from £60,000 to £10,000 (2025/26 figures).


• Other things to consider: UFPLS offers greater flexibility and tax efficiency than annuities, but not all pension schemes offer UFPLS, so you’ll need to check with your provider before proceeding. You can always switch to a provide that does offer it.

Calculate My Pension is the ideal tool to help answer this question. The main considerations are:

• Accumulating Current Fund plus Future Contributions — this requires a cashflow model that takes into account fund growth, charges and inflation.
• Required Retirement Income — there is a separate FAQ section on this topic. You need to know how much income you will need in retirement in order to determine whether or not you have the funds to provide that income. The amount you require may be lower in the later years of retirement.
• Affordable Retirement Income — calculating this also requires a cashflow model of retirement income, allowing for all the different sources of income commencing at different times. You can either work out whether your funds will run out at a certain age, or target a certain age for your funds to run out by.
• Longevity — how long will you need to provide an income from your funds whilst still alive. You can find out the average life expectancy for someone your age, but you may want to be cautious in your planning, in case you live longer than expected. Purchasing an annuity at a certain point can reduce the risk of funds running out.
• Uncertainty & Risk — to understand the risks involved, it is necessary to investigate the effect of altering the assumptions in the cashflow model. The results may be quite sensitive to changes in fund growth and inflation. The amount you can afford to take from your pension may vary over time.
• Planning as a Couple — if you and your partner are planning to retire at the same time, it makes sense to coordinate your retirement planning.

The answer to this is closely related to the first question, above. The key considerations are the same. But to calculate the exact income that is affordable, given your current retirement provisions and taking into account the state pension, requires a different approach to cashflow modelling.

The aim is calculate the level of income that can be maintained throughout retirement, up to a specified age, given a set of assumptions about fund growth, charges and inflation. This requires the following process:

• Simulate your retirement with a cashflow model on a given level of income and note the funds remaining at the end.
• Adjust the level of income being simulated up or down depending on whether there are funds remaining at the end, or if funds have been exhausted.
• Repeat steps 1 and 2 until the simulation ends up with funds being exhausted exactly at the specified age. The initial level of income in the final simulation is the income you can afford.

This is exactly how Calculate My Pension works.

The earliest you can access private pension savings is age 55 , rising to 57 in 2028.

If you want to retire before this age, you can fund the years before you pension becomes accessible with income from an ISA.

Calculate My Pension can help with modelling this scenario, confirming that you have enough funds in your ISA to afford to retire at your chosen early retirement age.

No, you cannot take your state pension before your state pension age. However, you can defer claiming after reaching state pension age to increase your payments by approximately 1% for every nine weeks deferred (around 5.8% per year).

Yes. Most defined benefit schemes permit early retirement—commonly from age 55 (some from age 50)—but with actuarial reductions to account for the longer payment period.

To investigate this you can:

• Contact your scheme administrator to request an early retirement quote and view the impact on your benefits. This would be required for smaller schemes where the reduction factors may not be published.
• Search the internet (or ask our AI Assistant) for the early retirement reduction factors relevant to your scheme. Then input those reduction factors in the Assumptions section in the Inputs page.
• Alternatively, just use the default early retirement factors already populated if you want a general guide. These factors are taken from the Pension Protection Fund so will be less generous than most schemes, meaning the factors are prudently low. So in reality, you are likely to get more.

Investing for retirement typically involves a long-term approach, where time in the market helps smooth out short-term volatility. It’s important to understand your risk tolerance, investment time horizon, and financial goals to choose the right portfolio strategy. Regular reviews and diversification are also key to managing risk effectively.

Main investment types include equities (shares), bonds (fixed income), property, and cash or cash equivalents. Each has different levels of risk and return. Many pension and ISA platforms offer multi-asset or diversified funds which include a mix of these asset types.

Lifestyling is the default investment strategy in many workplace pensions. It is designed to automatically reduce risk as you approach retirement. It gradually shifts your investments from growth assets (like shares) to lower-risk assets (like bonds and cash), following a preset glide path.

How Lifestyling Typically Works:

• Early years: Mostly invested in shares (80–100%) for long-term growth
• Mid-career: Still growth-focused but increasingly diversified
• Final 10–15 years: Begins gradually shifting into bonds and cash
• Final 5 years: Accelerates the move to lower-risk assets

This made sense when most people used their pension to buy an annuity, but since pension freedoms were introduced in 2015, many now keep their money invested using pension drawdown. That means you may still want some growth to support a retirement that could last 20–30 years.

So if you are planning to buy an annuity at retirement to provide your income, lifestyling is an appropriate strategy. If you opt for pension drawdown, it is less appropriate. The Bucket Strategy may be more appropriate.

Many financial advisers now recommend a “bucket” strategy for managing retirement income. It involves dividing your retirement savings into separate “buckets” for different time horizons:

• Immediate needs (1–3 years): Held in cash and short-term bonds for stability and easy access
• Medium-term (3–10 years): A balanced mix of bonds and dividend-paying shares to provide income and moderate growth
• Long-term growth (10+ years): Invested in growth-focused equities to maintain purchasing power over a long retirement

This approach allows you to weather market downturns with your short-term bucket, while keeping your long-term funds invested for growth.

Tax can significantly impact your investment returns. Using tax-efficient accounts such as pensions and ISAs can shelter your investments from income tax, capital gains tax, and dividend tax. The choice of wrapper is just as important as the investments themselves for long-term planning.

Inflation reduces the purchasing power of your money over time, so it’s important to invest in assets that have the potential to grow faster than inflation. Equities and property tend to outperform inflation over the long term, whereas cash and low-yield bonds may struggle to keep up. Reviewing your portfolio's real (after-inflation) returns is key to protecting your retirement income.

Investment charges can erode your retirement savings over time, particularly over decades. Even small annual fees can add up to a significant difference in your final pot size. It’s important to review fund and platform charges and compare them against other options regularly.

In retirement, your investment strategy typically shifts from growth-focused to balancing income, capital preservation, and longevity. You may reduce equity exposure and increase bonds and cash to manage risk. You might consider income sources like annuities, dividend shares, or inflation-linked bonds.

Ethical and sustainable investments aim to align your financial goals with your values. These options can focus on environmental, social, and governance (ESG) criteria. Many pension and ISA providers now offer funds that cater to these preferences without sacrificing potential returns.

Sustainable investing is an investment approach that considers environmental, social, and governance (ESG) factors alongside financial returns. It aims to invest in companies or projects that contribute positively to society and the planet.

The main principles include integrating ESG analysis into investment decisions, actively engaging with companies, avoiding harmful industries, and promoting transparency and ethical business practices.

Common approaches include ESG integration, negative screening (excluding certain sectors), positive screening (selecting top ESG performers), impact investing, and shareholder advocacy.

Why People Choose Sustainable Investing:

• Aligning values with money: You support causes you care about.
• Long-term performance: Many ESG-focused funds perform as well or better than traditional funds — sustainability can be good business.
• Managing risk: Companies with poor ESG practices may be more exposed to regulatory fines, lawsuits, or reputational damage.
• Future-proofing: Growing pressure from consumers, governments, and investors is likely to favour well-managed, ethical companies.

Absolutely — yes, you can build a fully diversified portfolio using only sustainable investments. In fact, there are more options than ever across all asset classes and risk levels that focus on sustainability.

What a Diversified Sustainable Portfolio Could Include:

1. Sustainable Equity Funds

• Invest in companies with strong ESG credentials.
• Diversify by region (UK, US, Europe, emerging markets) or by theme (clean energy, healthcare, tech).
• Examples include: MSCI World ESG Screened, FTSE4Good, or iShares Global Clean Energy ETF.

2. Green Bonds / Sustainable Fixed Income

• Bonds issued to fund environmentally or socially beneficial projects.
• Options include corporate green bonds, government sustainability bonds, or ESG bond funds.

3. Sustainable Multi-Asset Funds

• Invest in a mix of stocks and bonds screened for ESG criteria.
• Ideal for those seeking instant diversification with a sustainable tilt.

4. Ethical REITs / Property Funds

• Some Real Estate Investment Trusts (REITs) focus on energy-efficient buildings or affordable housing.

5. Thematic Funds

• Target specific sustainability goals like clean water, climate change, or the circular economy.
• These can add focus or impact to a portfolio but should be balanced with broader ESG funds.

Fees vary widely. Actively managed ESG funds may charge higher fees than passive ESG index trackers. Always check the ongoing charges figure (OCF) and compare providers.

You can access these through specialist funds, green bonds, or investment platforms that offer exposure to renewable energy, clean tech, and infrastructure projects. Some ISAs and pensions may also include them as investment options.

Potential Benefits of Combining Pensions:

• Simplicity: Having a single pension pot means fewer statements, fewer passwords, and less admin at retirement.
• Lower Charges: Older pensions often have higher annual charges. Newer providers may offer better value with lower fees.
• Better Investment Choices: Modern pensions tend to offer more choice, including ethical funds and index trackers.
• Easier to Track Your Retirement Goals: With all your savings in one place, it’s easier to see your total value and plan when and how to take income.
• Avoiding Lost Pensions: Consolidating helps ensure you don’t lose track of smaller pots from past jobs.

• What You're Transferring: You're transferring a pot of money. The value of this pot is based on the contributions made and the investment performance of the funds within the pension.
• Destination: Usually to another defined contribution scheme such as a personal pension, SIPP, or another workplace pension.
• Risk: You take responsibility for managing the investments in the new pension and are exposed to market risk.
• Advice Requirement: Generally not required unless the transfer involves giving up guarantees or special features.

• What You're Transferring: You give up a guaranteed lifetime income based on salary and years of service, in exchange for a lump sum "transfer value."
• Destination: The lump sum is transferred into a defined contribution scheme like a SIPP.
• Risk: You lose the security of a guaranteed income and take on investment and longevity risk.
• Process: More complex and regulated than defined contribution transfers.
• Advice Requirement: Legally required if the transfer value exceeds £30,000. Advice must come from a specialist in defined benefit pension transfers.
• Flexibility: You gain access and investment flexibility but lose the certainty and inflation protection of the defined benefit scheme.
• Safeguarded Benefits: These include inflation-linked increases, spouse's pensions, and lifelong income—all of which are lost on transfer.

Transferring a defined benefit (DB) pension is rarely recommended due to the loss of guaranteed income. However, some people may still consider it for the following reasons:

• Flexibility & Control: Access your pension pot more flexibly, invest it how you like, and potentially take larger lump sums.
• Health Concerns: If you have a shortened life expectancy, you may prefer to access more of your pension sooner or pass more to beneficiaries.
• Inheritance Planning: DC pensions can be easier to pass on tax-efficiently than DB pensions, especially if you die young.
• Scheme Solvency Concerns: Worry about employer insolvency or future cuts to DB benefits. (Note however that schemes are protected by the Pension Protection Fund).
• Personal Circumstances: Divorce, emigration, or need for a large lump sum.

Important: Transferring is irreversible and high-risk. Regulated financial advice is legally required for transfer values over £30,000.

Transferring a defined contribution (DC) pension is usually simpler than a defined benefit transfer and doesn't require advice unless special guarantees are given up. Reasons for considering a DC transfer include:

• Lower Charges: Newer pensions often have lower platform or fund fees, improving long-term growth.
• Wider Investment Choice: SIPPs and modern platforms can give access to better or more tailored investment options.
• Consolidation: Combining multiple pensions into one can make them easier to manage and monitor.
• Better Service: Some providers offer improved tools, clearer communications, or a better digital experience.
• Greater Flexibility: Access rules and drawdown options can vary. A transfer may allow for more flexible withdrawals or use of UFPLS.

Common Pension Transfer Charges

• Exit Fees: Some providers charge an exit fee when transferring out. For individuals over 55, this is capped at 1% of your pension pot’s value by the FCA. Younger savers may face higher fees, sometimes up to 5%.

• Set-Up or Administration FeesWhile many providers don’t charge for opening a new pension, some apply admin fees during the transfer. Always check with both current and new providers for any applicable costs.

• Financial Advice FeesTransferring a defined benefit pension worth over £30,000 requires regulated financial advice. Advisers charge for this service, and the fee depends on the pension’s complexity and the advice given.

• YAnnual Management Charges (AMCs)our new provider may charge AMCs for managing your pension investments. These typically range from 0.3% to 1% annually, depending on provider and fund choice.

• Investment and Fund ChargesIn addition to AMCs, some investment funds have extra costs, including performance-based fees. It’s important to understand these to avoid returns being eroded over time.

If you’re transferring a defined benefit pension worth over £30,000, regulated financial advice is required by law. It’s also wise for any complex transfer decisions.

The first task is to accumulate your existing funds along with contributions and fund growth up to your chosen retirement age to calculate your fund values at retirement.

The goal is then to find your affordable income level throughout retirement. This is achieved with an algorithm that uses the following iterative process:

1. Simulate your retirement cashflows with an initial guess for affordable income.
2. Adjust the income up or down depending on whether funds last to the target age.
3. Repeat steps 1 and 2 until funds run out exactly at the specified age.

The resulting affordable income is then compared to your target income at retirement and a surplus or shortfall is calculated.

All of the above is done in a fraction of a second, so if you make any changes to the inputs or assumptions, you can immediately see the revised surplus or shortfall.

Other cashflow models used for retirement planning (such as Voyant and Guiide) do not employ an algorithm to calculate your affordable income level. Only a single simulation is used and the calculation determines whether your target net income results in funds running out during retirement. It is then up to the user to make adjustments to the inputs are rerun the calculation to eliminate the shortfall. This is a manual process which needs to be repeated if any of the inputs or assumptions, such as the fund growth or inflation rate were changed.

The user therefore cannot just make adjustments to inputs and assumptions and see the effect. Another approach is used to investigate the effect of changes to assumptions which involves running thousands of simulations, each with randomly generated assumptions (known as Monte Carlo Simulation). This has its downsides:

• People are generally not familiar with probability distributions and so don't really understand what the results are saying.
• The probability distributions are calibrated to historical data which are not necessarily a guide to the future (for example the recent high inflation would not have been given very low probability)
• Correlations between the probablity distributions for the assumptions are just as important as the distributions themselves.
• The range of outcomes of the level of funds remaining at the end can be so huge that the only useful figure is the average - which doesn't need Monte Carlo Simulation to calculate.

Your state pension is automatically included in the calculations as follows:

• It is assumed that you qualify for a full state pension.
• The amount is increased each year in line with the inflation assumption or 2.5%, whichever is higher.
• Increases are applied at the end of each projection year, which implies that projection years are tax years - in practice increases occur on the first Monday on or after 6th April each year.

The calculation of your state pension age uses a simplified method that does not need your date of birth, only your current age. This determines your birth year from your current age and applies broad rules as follows:

• Born before 1954 → pension age 65
• Born 1954 to 1960 → pension age 66
• Born 1961 to 1977 → pension age 67
• Born 1978 or later → pension age 68

In reality, state pension age is based on your exact date of birth and increases gradually in some periods. This simplified method for calculating state pension age might be up to 11 months out for people born in the tax years 1960/61 and 1977/78 (tax years start on 6th April). Improving the accuracy to nearest month for these people is in the list of planned future features to be included before the end of 2025.

You can choose whether or not to take a tax-free lump sum at retirement, and what percentage of your fund to take.

• If you choose to take a lump sum, it is assumed you spend it immediately (rather than invest it in an ISA). Any lump sum tax is therefore ignored in the rest of the projection.
• Allowing users to divert a portion of the lump sum into their ISA is in the list of planned future features to be included before the end of 2025.
• The maximum allowed is the lower of 25% of your fund or £268,275.
• If you do not take a lump sum, or take less than the maximum, the model assumes you access your pension using UFPLS (Uncrystallised Funds Pension Lump Sums), which allows you to preserve the 25% tax-free element within each withdrawal.
• The calculation keeps track of the cumulative total tax-free lump sums taken using UFPLS and prevents any further being taken when the maximum £268,275 is reached.
• If you are already retired, the starting point for the cumulative total calculation is approximated by assuming you have just retired and your current fund is the residual amount after the lump sum withdrawal.
• Allowing users to input the exact amount of tax-free lump sums already taken to improve the future tax calculations is in the list of planned future features to be included before the end of 2025.

Income tax is calculated on retirement income each year in line with current UK tax rules for the 2025/26 tax year. The following simplifications apply:

• Tax bands and thresholds are increased with inflation after the freeze that is currently in place until 2028.
• The personal allowance is assumed to apply in full unless your income exceeds £100,000. It is then gradually removed up to £125,000 to reflect current tax rules.
• There is an option to use Scottish tax rates and bands. The band freeze to 2028 is only applied to the higher rate band in Scotland, reflecting current practice.
• National Insurance is only calculated for 'Other Income' earned up to state pension age, in accordance with the rules.
• Income tax is calculated on the total taxable amount for each year (state pension plus DB and DC pensions plus other income). The tax payable on DC pensions therefore depends on the level of other income sources.

The treatment of early retirement is as follows:

• The UK’s minimum pension access age is recognised in the calculations: currently 55, moving to 57 from 6 April 2028.
• If your chosen retirement age is before this minimum, a check is performed on whether you have enough ISA funds available to cover your required income until pension withdrawals can begin.

To meet your desired retirement income, the calculator automatically works out how much should come from your pension and how much from your ISA using the following logic:

• Pension income is used first, but only up to your personal allowance, or anything left of your personal allowance after your state pension, maximising tax-free income.
• Income is taken from your ISA for the rest of the target net income. This means no tax is paid until your ISA runs out of funds.
• Premium subscribers have the option of using up a portion of their basic rate band with pension income. Whilst increasing tax paid in the short term, this may significantly reduce overall tax paid throughout retirement by minimising the amount of future pension income going into the higher rate band.

Projection Assumptions

• Projections are done annually rather than monthly.
• Fund growth and inflation are treated as fixed (deterministic) values, not varying over time.
• A single inflation rate is used rather than separate rates for prices and earnings.
• It is assumed that you require a retirement income that rises with inflation.

ISA and Investment Simplifications

• You only have either a cash ISA or a stocks and shares ISA, not both.

Couples Planning

• When planning as a couple, an assumption is made that you will retire at the same time as your partner.

The default values are intended to give a sensible and neutral starting point for pension planning, using rounded numbers that are easy to interpret and consistent with regulatory assumptions where appropriate.

• Fund growth: 7.5% per year - this equates to the 5% real return specified in the FCA's intermediate projection scenario, with inflation added to give the nominal growth rate required.
• Inflation: 2.5% per year – as specified in the FCA's intermediate projection scenario.
• Fund charges: 0.75% per year – this is the maximum allowed on workplace pensions.
• Projection term: To age 99 as required by the FCA for pension drawdown illustrations.