Taxed pensions withdrawals
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Taxed pensions withdrawals
Since pension freedoms were introduced in April 2015, people over the age of 55 have been able to cash in their entire pension as an alternative to taking it in regular instalments. Research* has revealed that one in five over-55s withdrew taxed lump sums from private pensions during 2019. The top three priorities for the money were saving, putting it into the bank or making home improvements.
Consider tax implications
At first glance, the research appears to imply sensible financial planning reasons for pension withdrawals, rather than frivolous spending. However, in reality, there is little financial sense in shifting a taxed lump sum from a tax-efficient pension simply to place the proceeds on deposit. This is partly due to potential tax bills on withdrawals, but also relates to inheritance rules around pensions, which mean most people would be better off leaving money in a pension until they need the cash for income or specific spending requirements.
Professional advice
Taking professional advice before making any pension-related decisions is vitally important, particularly in the current economic climate. So, if you are considering accessing your pension soon, get in touch – we will help you make the best decision.
*Canada Life, 2020
It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.
Information is based on our understanding of taxation legislation and regulations. Any levels and bases of, and reliefs from, taxation are subject to change.
Tax treatment is based on individual circumstances and may be subject to change in the future.
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