With the introduction of the Pension Freedoms Act in 2015, you now have a range of options that allow you to flexibly withdraw your pension pot from the age of 55. And you don’t have to be retired to withdraw this money.
There are lots of reasons people decide to start withdrawing their pension money early. Some of the most common are:
The first 25% of your pension can be taken tax-free. Any further withdrawals are subject to income tax at your marginal rate. So, taking too much from your pension in one go could mean getting stung by a large tax bill. Tax treatment depends on your individual circumstances and may be subject to change.
Keeping an eye on how much you withdraw from your pension is especially important if you’re still working because both your income from employment and any money you take from your pension will go towards your annual allowance. And exceeding this allowance will push you into a higher tax bracket.
A financial adviser can help you work out how much you can withdraw from your pension in any given year to stay within your annual tax allowance. This will ensure that you don’t exceed this allowance and end up facing a large bill.
Since 2006, people have been able to take their tax-free lump sum from their pension from the age of 55. Now you have even more options available to you. As well as taking all or some of your tax-free cash, you can also:
Not every option is right for everyone so it’s a good idea to first take a look at your pension and consider both your current and your future needs to know what is right for you.
The reason that not every option is right for everyone is because releasing pension money early will leave you worse off in retirement. That’s why it’s important to consider both your current and future needs, as well as your financial circumstances.
The best thing to do is to speak with a financial adviser. By asking them to check your pension, you can learn:
They can make sure that you don’t fall into any of the common pitfalls when withdrawing your money and ensure that you are keeping your future safe while doing so.
We can help you make the best possible decisions when it comes to your pensions. We are authorised and regulated by the Financial Conduct Authority.