From the age of 55 you have the option to withdraw some of your pension and start using it for various things. For some, this means income needed for living costs, others look to use the cash, for example for property investments.
You have two main options – income drawdown where it can be tax free, either in instalments or lump sum, and the taxable part can be taken out at another time, if desired. Second option is to withdraw as a lump sum, where 25% of it will be tax free, but the other 75% is taxed as income (named uncrystallised funds pension lump sum, or UFPLS).
Things to consider include:
- Taking out a lump sum will reduce the value of your pension and the income provided from it.
- Personal circumstances and different tax rules may change in the future, and it must be considered when making decisions at this present time.
- It is possible to carry on withdrawing money from your pension until funds are finished but remember to leave enough money for the rest of your retirement as individual circumstances can always change.
- The lifetime pension allowance is £1,073,100, and any money left in a pension can be passed to your beneficiaries and not usually subject to inheritance tax.
Pension owners should think carefully when taking crucial decisions as withdrawing money from it. Pensions are one of the most tax efficient ways to save money, and pensioners get tax relief when contributing towards it. There are scammers online trying to access people’s pensions, so think carefully before taking any decisions about it.
To discuss more about how we can support your business, please contact your local AIMS accountant.