Maximising Pension Tax Free Cash


The new ‘pension freedom’ rules have created the illusion that retirement planning has become much easier. We all know that people have more freedom in how they can take their benefits, but this seems to have been misinterpreted to include the assumption that clients should organise it all themselves.

Admittedly, this is possible and feasible. In some cases, clients can go directly to their pension company and give specific instructions on what they want – but it may not be the best course of action.

Take the issue of tax free cash sums. Yes, you can take your tax free cash sum in one hit, but what are you going to do with it on the first day of your retirement? You probably aren’t planning to spend it all in the next few weeks! So if you have no specific use for it immediately, why not take what you need and leave the rest invested – where it will continue to grow in tax advantaged funds?

Normally, you are able to take 25% as a tax free cash sum. On a pension pot of £150,000 that could amount to £37,500 – a large amount of money to leave in a deposit account whilst rates are still extremely low. A potentially better solution would be to withdraw what you need and leave the rest of the tax free cash sum to continue to grow in the pension pot – tax free and potentially at a better rate than normal deposit rates

It might seem like a small point, but the difference could amount to thousands of pounds more paid out with no liability to tax.

 Pension Freedom has increased choice but it has also increased complexity. This is just one small example showing how qualified financial advice can help maximise your retirement benefits. For further information please contact us >>

Written by Sean O'Shea | Senior Consultant

Sean joined has been an IFA for over 20 years. Read more >>

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