Things to consider before taking cash from your pension

Withdrawing cash – the pros and cons

A lot of people choose to take their tax-free cash as soon as they can – currently at age 55, although that will rise to 57 in April 2028 – just because they can.

But do you really need it right now? Money has certain tax advantages within a pension, and it doesn’t form part of your estate for Inheritance Tax. So if the answer’s no, then you should consider leaving your pension savings invested. That gives it the potential to grow, and the tax-free lump sum you take out later could potentially be bigger.

Of course, if you have a good reason – to pay off debt, or help a child – then remember, you don’t have to take out the whole 25%. You can simply take out what you need and leave the rest invested for potential growth.

And if you do take the money out, give some thought about where to save it. If you put it in a general savings account, you could end up paying tax on the return. You could avoid this with an ISA but there’s a limit to what you can pay in – currently £20,000 a year.

Do you want to leave money to loved ones?

Your workplace pension is a valuable investment. It can be a tax-efficient way to pass on your wealth as it falls outside your taxable estate. This means your beneficiaries won’t pay Inheritance Tax (IHT) on the amount they receive from your pension savings.

So, if you can meet your financial goals another way, it might be better to leave your pension savings where they are.

If you die before the age of 75, your pension can usually be paid tax-free to your beneficiaries. This is the case whether they take the money in full, or they start ‘drawing it down’ within two years. If you live beyond 75, they’ll only pay tax on the money they take at their normal rate of income tax.

Remember – tax is based on individual circumstances. Pension and tax rules might change in the future.

It’s easy to nominate a beneficiary

It’s important you tell us who you’d like to receive your pension savings after you die. If you haven’t already nominated your beneficiaries, or you’d like to change them, log into PlanViewer and do it today.