Most pre-retirement planning fails not because the money is missing but because the order is wrong. A couple aged 58 with £300,000 across pensions and ISAs can fund a five-year bridge to State Pension age on paper. Whether they do it without paying avoidable higher-rate tax depends on which wrapper they draw from in which tax year, and on whether they checked the person recommending the sequence before the first withdrawal left the account.
This article treats the bridge years as what they are: a run of annual tax-band decisions, bracketed by two dates you control less than you think — the day you stop work, and the day the State Pension starts. The uncomfortable truth is that the first decision is not about money at all. It is about the adviser relationship.
Step 1: Audit the adviser before you move a penny
If an adviser is going to recommend a withdrawal sequence, verify them first. The FCA’s Financial Services Register is a public record of firms and individuals authorised or registered by the FCA or the PRA, and it includes Directory Persons data on individuals carrying out regulated activities (FCA, Financial Services Register). The FCA’s own instruction is direct: check the details of any individual carrying out regulated activities on your behalf, especially current roles and any disciplinary or regulatory action on their record.
Two things are worth understanding before you read a suitability report. First, some firms on the Register are appointed representatives (ARs), carrying out activities on behalf of a principal firm. If an AR has gone beyond the activities its principal allowed, you may not be protected by the Financial Ombudsman Service or the Financial Services Compensation Scheme if something goes wrong. Ask the principal to confirm what the AR is permitted to do. Second, the suitability report should state the recommended sequence and the reasoning behind it — not just the product. If it recommends taking tax-free cash in year one without explaining what that does to your Lump Sum Allowance and your future contribution position, that is a question to put in writing before you sign anything.
This is the same discipline described in the question you should be asking years before you retire: the relationship and its paperwork come before the arithmetic.
Step 2: Establish the income floor
Before sequencing anything, know what the State Pension will actually pay you. The full rate of new State Pension is £241.30 a week, and your amount depends on your National Insurance record — whether you were contracted out before 2016, how many qualifying years you have, and whether you paid into the Additional State Pension before 2016 (GOV.UK, The new State Pension: what you’ll get). Get the forecast, not the assumption.
Then note the point people forget: you usually pay tax on income from your pensions, including the State Pension, and the amount depends on your total income in the tax year (GOV.UK, Tax when you get a pension). The State Pension is not a tax-free floor. It occupies part of your Personal Allowance from the year it starts, which changes the headroom available for everything else.
Step 3: Map the gap year by year
Count the years between your stop-work date and State Pension age. For each one, write down two numbers: what you need to spend, and how much unused Personal Allowance and basic-rate band you have. The current bands, for the 2026 to 2027 tax year, are a £12,570 Personal Allowance, basic rate at 20% on £12,571 to £50,270, and higher rate at 40% on £50,271 to £125,140 (GOV.UK, Income Tax rates and Personal Allowances).
Those thresholds are the raw material of sequencing. A year in which you have no other income has roughly £50,270 of basic-rate headroom. A year in which you are still receiving a salary, a final bonus or rental profit has less. The bridge is not one decision; it is five or six annual decisions, and the cheapest ones are usually the years with the most unused band.
Step 4: Sequence the wrappers
Three sources of money behave differently, and the differences matter more than the labels suggest.
ISAs. In the 2026 to 2027 tax year the maximum you can save in ISAs is £20,000 (GOV.UK, Individual Savings Accounts). Withdrawals from an ISA are not income and do not use up your Personal Allowance or basic-rate band. That makes ISA money the cleanest way to fund a year without disturbing your tax position — but it is also finite, and spending it first means you have less flexible capital close to State Pension age.
Pension tax-free cash. You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum, with a maximum of £268,275 (GOV.UK, Tax when you get a pension: what’s tax-free). The tax-free lump sum does not affect your Personal Allowance. But it is not free in the wider sense: from 6 April 2024 there is a limit on the total amount of lump sums and lump sum death benefits you can receive free from Income Tax — the lump sum allowance and the lump sum and death benefit allowance (HMRC, Find out the rules about Individual Lump Sum Allowances). If you took pension benefits before 6 April 2024, your available allowance may be reduced under transitional rules, and your scheme should provide a statement showing the monetary amounts used. Check that statement before you assume you have the full £268,275 available.
Drawdown withdrawals. Money taken from flexi-access drawdown is taxable income. Your provider will take off tax before paying you, and you might have to pay Income Tax at a higher rate if you take a large amount, with extra tax possibly owed at the end of the tax year (GOV.UK). Drawdown is the tool that uses your band headroom deliberately — and the one that punishes carelessness.
The practical implication: ISA withdrawals and tax-free cash are both tax-free, but they are not interchangeable. ISA withdrawals do not count as income at all. Tax-free cash consumes a finite allowance that cannot be replenished. Spending ISA first preserves the pension’s tax-free capacity for later; spending tax-free cash first gives you more ISA flexibility near State Pension age but uses up allowance you may want for a larger, later decision.
Step 5: Watch the interactions
Three interactions catch people out.
The contribution charge. You may have to pay a tax charge on money you put into your pension after you withdraw cash (GOV.UK). If you are still contributing — or plan to — the timing of the first withdrawal matters as much as the amount. This is the strongest argument for not treating the tax-free lump sum as money to take at the first opportunity.
The higher-rate spill. A large withdrawal can push you into higher rate and create an end-of-year bill. Drawdown income is added to your other income for the year; the provider’s deduction is an estimate, not a final settlement.
The taper. The standard Personal Allowance is £12,570, and it reduces by £1 for every £2 of adjusted net income above £100,000, reaching zero at £125,140 (GOV.UK). A bridge-year withdrawal that looks modest against the basic-rate band can still erode your allowance if other income is high. For most bridge-year planners the £100,000 line is the one to watch, not the £50,270 one.
Step 6: Stress-test before the first withdrawal
Sequencing assumes the money is there when you need it. It may not be. A market fall in the first two years of drawdown does more damage than the same fall in year ten, because you are selling units to fund spending while prices are low. The plan should specify in advance what you will do if the pot falls 20% in year one: which wrapper you draw from instead, which spending is discretionary, and what you will not do — namely, abandon the plan in the moment.
The psychological risk is the mirror image of accumulation. You have spent decades watching the pot grow; now you watch it fall. The first fall after the first withdrawal is when a plan is most likely to be abandoned. Decide the response in advance, in writing, while you are calm.
A worked hypothetical
Consider a couple, both 58, with £400,000 in pensions and £150,000 in ISAs, planning to stop work at 60 and draw State Pension from 67. That is a seven-year bridge. Assume spending of £40,000 a year and no other income.
One approach: fund years one and two from ISAs, preserving pension allowances; then use tax-free cash and drawdown in the middle years to use basic-rate headroom; then draw more heavily from ISAs in the final two years to avoid pushing drawdown income into higher rate. Another approach: take tax-free cash early to reduce the pension pot and crystallise the position, accepting the contribution charge risk and the loss of allowance flexibility.
Neither is universally right. The first preserves optionality; the second simplifies the estate and may suit a couple with health concerns or a desire to reduce pension complexity before anticipated future changes to pension taxation. The point is that the choice should be made year by year, with both partners’ State Pension forecasts and Lump Sum Allowance statements on the table — not decided once, at the start, and never revisited.
What to do next
Gather three documents before the first withdrawal: your State Pension forecast from GOV.UK, pension statements showing the monetary amounts of Lump Sum Allowance already used, and a current FCA Register check on the firm and the individual advising you. Then write down, for each bridge year, the spending need and the unused basic-rate headroom. The sequence usually becomes obvious once those numbers sit side by side.
FAQ
Can I take tax-free cash and keep contributing to my pension? You may have to pay a tax charge on money you put into your pension after you withdraw cash. Check your position before withdrawing if you are still contributing.
Is the State Pension tax-free? No. You usually pay tax on income from your pensions, including the State Pension, based on your total income for the year.
Does taking tax-free cash affect my Personal Allowance? No. The tax-free lump sum does not affect your Personal Allowance. But drawdown withdrawals are taxable income and do.
How do I know if my adviser is authorised? Check the FCA’s Financial Services Register for the firm and the individual, including current roles and any disciplinary or regulatory action. If the firm is an appointed representative, ask the principal what activities it is permitted to carry out.