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