If you’re aged 55 or over and have been putting your hard-earned cash into a pension pot over the years, then now’s the time you could withdraw some or all of your savings – without paying higher tax rates for the privilege.
Thanks to the government’s Pension Reform, effective from April 2015, you can now withdraw thousands of pounds from your pension funds, instead of having to go down the traditional annuities route. The choice is yours: keep it or spend it.
To withdraw, or not to withdraw
Perhaps, with your mortgage paid off and children having flown the nest, you have more time to see the places you maybe never got to go to in earlier life. Research firm, Hargreaves Lansdown, reveals that as many as 200,000 pensioners plan to withdraw their entire pot as soon as possible and 20 per cent of them plan to splash out on a holiday abroad. Take a look at our specialist over 50s travel insurance if you’re thinking of doing the same.
If not for a foreign adventure, you might choose to place your nest egg into a new investment which you feel is safer and more solid than your pension fund. Alternatively, you might want to pay off debts or do up your house. The beauty of it all is, you have the freedom to access as much or as little of your savings at a time, whenever you want to and without paying the tax rates of past years (currently 55 per cent is charged for withdrawing an entire pension pot).
Look before you leap
Research from Hargreaves Lansdown reveals that with only 40 per cent of pensioners being aware of how much tax they must pay on a cashed-in medium-sized pot – and six per cent aware for those with bigger savings – they warn that the government needs to think again about how to regulate the “new freedoms.” Tom McPhail, head of pensions research, adds: “We want investors to take responsibility for and to engage with their savings, but we also don’t want them paying unnecessary tax bills or running out of money.”
As they say: a penny saved is a penny earned and some of us still need to earn for our retirement years. Although many people regard pensions as risky investments, placing your money elsewhere can sometimes prove equally dangerous, with poorly paying accounts doing very little to ensure savings will stretch your entire retirement. A pension is designed to help provide an income for later in life when you are no longer working. Deciding how to turn your money into an income shouldn’t be a decision made on impulse so careful number crunching is key to having a pot that keeps on giving.
This information is merely meant as a general guide to the Pension Reform. For professional advice, please consult a professional financial adviser.