Should I use my pension pot to buy a Lamborghni?

After George Osborne used his budget spending to announce an overhaul to the UK pensions regime, pensions minister Steve Webb commented: "if people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice."

It's one of those comments that seems like a political gaffe, but, on reflection, is pretty clever.  What's not to like about the government letting me spend my pension pot in the way that I choose?  But it still leaves the question of how much money it would cost to buy a Lamborghini with a pension pot, taking into account that income tax is payable when money is withdrawn from a pension?

I calculate that it would take a pension pot of £356,419 to buy a Lamborghini for £250,000 (If you just stumbled across this site, and are actually looking to buy a Lamborghini then might I suggest Lamborghini: they say £265,900 but I reckon you could talk them down to £250,000)

Like everything else on this website this is my understanding of the position  - please don't take it as gospel.  I think your pension pot would be disbursed as

			Pension pot		After tax Income
Tax free lump sum			89,104		89,104
Basic rate			31,865		25,492
Higher rate			118,135		77,974
Additional rate			117,315		64,524
Total			356,419		250,000

So as well as paying £250,000 for a car you're paying £106,420 in tax.  That's a rate of nearly 30% on the entire pension pot.  As a rough rule of thumb a medium affluent person could expect to pay tax on their pension pot at 15% (i.e. take out 25% tax free and, assuming some other income to absorb the tax free allowance, pay 20% on the remaining 75%).

Is there a serious point to this?  Well I guess I need to think about income tax when I'm thinking about pensions would be my conclusion.

Next week I'm planning to post on how the government proposes to reform the rules for pensions.  If you would like to receive email notifications for this blog please enter your email address in the box at the top of the home page.