If you’re planning to retire in the next few years, you may want to start thinking about what you’re going to do with the pension pot you’ve built up. There’s a great deal of flexibility about how you take an income from your savings. That means it’s a good idea to check out the pros and cons of the various options, and see how they will each affect your lifestyle, the tax you pay and the amount you can pass on to your family.
Some points to bear in mind
- If you withdraw any money from your pension over the amount you can take tax-free, it will affect the amount you can carrying on saving in pension plans with the benefit of tax relief. This will go down from £40,000 to £4,000 and is known as the money purchase annual allowance.
- If your pension pot is worth more than the lifetime allowance of £1.0731 million, you may have to pay a tax charge.
- If your pension pot is worth less than £10,000, you may be able to withdraw the whole amount as a single lump sum, including 25% tax-free. This is known as a ‘small pot’ withdrawal, and it will not count towards your money purchase annual allowance or your lifetime allowance.