Pension Withdrawal & Tax Free Cash
When can I withdraw money from my pension?
Learn how you make withdrawals and take your cash from your pension
What is Pension Withdrawal AKA Flexible Drawdown?
· Flexible drawdown
· Flexi access drawdown
Flexible Drawdown can be confusing, some people use terms like:
· Pension withdrawal
· Pension drawdown
​· Income drawdown
However, these all have the same meaning! Basically, drawing your money from a pension in an extremely flexible way. It is the opposite of buying an income for life (or annuity) – although annuities are still available.
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Making withdrawals from your pension will have tax implications so care is needed but if you really wanted to, you could even withdraw your entire pension on day 1!
Remember, all experts working with WhatPension? Must agree to offer a FREE and no obligation 1st meeting. You have nothing to lose!
How does it work?
Take extreme care!
For example, always check whether:
· There may be charges each time you take a withdrawal
· There may be limits or restrictions on how many withdrawals you can take.
A lot of older pensions will not allow any flexible drawdown and try to (suggest or even force you) to buy an annuity instead!
Flexible Drawdown allows you to take money from your pension in many ways including:
· Partial tax-free cash (lump sum)
· Full tax-free cash (lump sum)
· Regular tax-free cash payments (as income)
· Regular taxable income payments
· Ad-hoc or one-off income withdrawals
· And, in any combination of these!
Normally, below age 55 (57 from 2028), your pension savings cannot be withdrawn.
If you die and have not exhausted your pensions, any remaining money may be available to your family (including an unmarried partner or children for example).
Meanwhile, any money not drawn out will remain invested, hopefully growing and thereby providing an even bigger pot to draw from in the future.
Remember, all experts working with WhatPension? Must agree to offer a FREE and no obligation 1st meeting. You have nothing to lose!
Cashing in Pensions at 55 – aka Pension Release
Normally, tax rules allow:
· Up to 25% of your pension to be drawn tax-free (known as Pension Commencement Lump Sum or “PCLS”)
· The remaining 75% being subject to income tax depending on other income.
This gives you lots of flexibility to manage any tax liability. You could even take your pension in one go, but this could mean you pay a horrific amount of tax! Whereas you could take your cash over 2 or 3 years and minimise the amount of tax you pay.
If you have a small pot, (meaning less than £10,000 or £30,000). Another route such as “small pot encashments” or “trivial commutation” may be used.
You should take care and get expert advice as cashing in a pension may trigger something called “The Money Purchase Annual Allowance” which would forever limit how much tax relief can be generated in the future.
Remember, all experts working with WhatPension? Must agree to offer a FREE and no obligation 1st meeting. You have nothing to lose!
Can I cash in my Pension before 55?
In most cases, the earliest age you can access your pension fund is age 55 and be aware just because you can, definitely doesn’t mean you should!
Pension fraud and liberation scams are on the rise, with schemes and so-called “advisers” offering to release your pensions before the age of 55. You could end up losing all your pensions and should steer well clear!
Learn how it’s taxed and how it could affect your retirement
Take 25% Tax-Free Cash
Most clients believe they have to take all their tax-free cash in one go. If you have a mortgage to repay or a large spending need this may be sensible, however drawing your tax-free cash to leave it sitting in a taxable savings account is rarely sensible.
Some schemes have “protected tax-free cash” so care should be taken in this event.
Flexible drawdown allows you to take your cash using a “phased approach” – ie: taking your tax-free cash in chunks over a period of time.
Remember, all experts working with WhatPension? Must agree to offer a FREE and no obligation 1st meeting. You have nothing to lose!
Options for taking your retirement benefits
It is important to remember your pension is there to provide you with income in retirement. Taking too much, too early could leave you with not enough in the pot for your future.
Buying an Annuity – this can provide a guaranteed income.
Annuities can be arranged either for life or a fixed period of time (for example 10 years). There are many other features that also need to be considered such as:
· Guaranteed periods
· Spousal benefits
· Indexation
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Remember, all experts working with WhatPension? Must agree to offer a FREE and no obligation 1st meeting. You have nothing to lose!