The Treasury has forecast that it will receive an additional £5.1bn in tax by April 2019 as a result of the pension legislation introduced in 2015.
Originally, it had estimated that the tax resulting from the pension changes would be much lower, and that people would make phased withdrawals from their pension pots over a number of years to avoid paying large amounts of tax. The higher tax figure is an indication that people are taking more money out of their pensions and some may not have been aware in advance of the tax implications of doing so.
Research conducted by the Personal Finance Society suggests that up to two-thirds1 of pension savers don’t take professional advice before accessing their pension cash.
Why good advice matters
Getting advice will ensure that you understand the choices open to you on retirement, and help you make tax-efficient decisions for your money. We will explain the options open to you, such as taking an income via a drawdown scheme or buying an annuity.
On retirement, you can take up to 25% of your pension savings as a lump sum, on which no tax is payable. However, if you choose to take more than this figure, the money is viewed as income and you will have to pay tax on it once it exceeds any unused allowances.
Taking too much too soon from your pension could result in you running out of funds in later life. You could be looking to several decades in retirement, and you’ll want to ensure that your money lasts as long as you do.
1 Personal Finance Society, 2018
If you’re making plans for your retirement and would like some professional advice, then please get in touch.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.