When the time’s right, you can harness the power your pension has.
Lets explain...
Enjoy up to 25% of your pension tax-free
You can usually take up to 25% of your pension tax-free. Invest it, spend it or save it, the choice is yours. You don’t have to take it all at once.
The remaining 75% is considered taxable income. You can withdraw it all, invest it all or save it all. You have many options.
The amount of tax you pay on your remaining balance will depend on the tax bracket you sit in. If you have a higher monthly income, through work or investments, you might sit in a higher tax bracket. Often, we find that retirees want to avoid this where possible so they can help their money last.
The possibilities your tax-free cash offers are almost endless.
Your tax-free withdrawal won’t last forever. Here’s what you need to remember.
Whilst you can recycle your pension, HMRC is cracking down on anyone exploiting this. Essentially, you can reinvest your tax-free lump sum back into your pension, but there are strict rules you need to follow. Otherwise, tax charges of up to 70% may apply.
Once your tax-free allowance is used up, it’s gone. Whilst you might have had big plans for it, without a budget or strategy in place, you can find that it’s vanished almost as soon as you’ve claimed it. There’s no need to claim it all in one go, or even as soon as you’re old enough.
Seeking retirement advice could help you find other investment opportunities or retirement products worth purchasing. You don’t need to simply stick with a pension for the rest of your life, you could benefit from savings accounts and annuities too.
Sadly, pension scams are rife, targeting unsuspecting retirees who just want to enjoy their golden years. As a rule, you should always speak to someone who’s FCA accredited before you part with any of your pension. That way, if you receive any harmful or bad advice, you could be able to claim compensation.
There are no guidelines that say you must claim your tax-free allowance once you hit pensionable age, you can defer it. In fact, deferring it could help further build up your pension balance, especially if it’s invested and gaining interest. If you’re able to, you could claim more as part of your 25% allowance this way.
You don’t have to claim it all at once, you can spread it out too.
Take up to 25% of your pension pot as a tax-free lump sum. The remaining 75% could be used to buy a pension product, like an annuity. When you claim anything from the other 75% of your pension, even if it’s been invested in an annuity, you’ll need to pay tax on it.
Take 25% tax-free on every withdrawal as you go. You can leave your pension fund where it is and take out chunks of money as and when you need it. 25% of each withdrawal would be tax-free, so you’d pay tax on the remaining 75%. This gives you the flexibility to dip in an out.
You don’t even have to claim it straight away. As soon as you hit 55, you can claim most private pensions. However, with the State Pension not offered for another 10 years (at least), you might choose to keep working and let your interest accrue on your pension.
Preparing your pension ahead of retirement will help you find comfort in your golden years.
Here's what you need to know
Preparing to retire is daunting but, with the right tools and support in place, you can create something great with memories to cherish
Using today's rates our calculator can give you a snapshot of the income your pension savings could buy you in retirement. You can also choose to add your health details to personalise your quote even more!
Our fixed term annuity calculator gives up-to-date results based on current rates. We shop around the whole of the market to get you the best quote for your specified income and/or guaranteed maturity value.
Retirement is a huge deal, especially after a lifetime of hard work. There’s no need to tackle it alone, which is where our retirement advice service helps. We can assist you in preparing your income so you can fully relax when you retire.
Looking for your state pension age and what you can expect to get? Our friends at Gov.uk have you covered.
Retirement advice
Need help understanding how to manage your tax-free cash from your pension?
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