Why so many over 55s took pension cash early in 2018
Between April 2015 and September 2017, *72% of people dipped into their pension pot before the age of 65. In fact, some people even withdrawn it all! Hang on, did we just say before the age of 65? That’s right. From the age of 55, you have the option to take lump sums of money from your pension, the first 25% of which is tax free. But why are so many people thinking about taking money from their pension pot early?
Let’s look at the top 5 reasons tax-free cash was taken in 2018**:
|Primary reasons||% of people||Secondary reasons||% of people|
|Tackle a debt||31%||Make home improvements||19%|
|Make home improvements||22%||Tackle a debt||16%|
|Buy/repair – car/van/motorbike||11%||Take a holiday||15%|
|Help family||9%||Put in savings||14%|
|Take a holiday||8%||Buy/repair – car/van/motorbike||13%|
Jamie Smith-Thompson, MD at Portafina says,
“Taking money early from your pension is a big decision as this is the money you have saved for your future. What the pension freedoms gives you is the flexibility to use some of your money now, if you really need to.
“Tackling a debt, especially one with a high interest rate or taken over a long term, can lower levels of anxiety and stress and reduce monthly outgoings. Likewise, future proofing the home can also mean one less thing to worry about.
“It’s clear people are thinking about their quality of life. For some that means buying a car, for others, it’s helping the kids with education and wedding costs.
“Those thinking of taking tax-free cash to put into other savings should think carefully about how this investment would compare with leaving the money in their pension, which for many will still be the best place for it. A chat with a regulated financial adviser will help you make an informed decision.”
The decision is very much a personal one whether you choose to access your pension cash or not. You will need to consider the balance of what you need and want now with what you might need 10, 20, or even 30 years down the line if you are thinking about accessing pension money at 55.
Turn 55 in 2019? Here’s 4 things you need to know:
- You can opt to release up to 25% of your pension savings completely tax free.
- You can opt to take all your pension savings in one lump sum. If you do this or take a lump sum of anything over 25% of the total pension value, you will be subject to income tax at your marginal rate. Not only do you lose your hard-earned money to the tax man, but you will have significantly less to fund your retirement.
- You can leave your pension exactly as it is. Your savings can continue to grow meaning you have more in the pot when you need it.
- Or, Portafina can review your current pension performance and find out if you could be in a stronger financial position when it comes to retirement. Plus, if you decide you want to take some pension cash early, we can help you to do that, providing you have an eligible scheme.
There are more options available. To make the right pension decision for you, the best thing to do is to speak to a financial adviser regulated by the FCA. Taking money early from your pension might not be right for you, as it could leave you with less to live on than you need; it shouldn’t be seen as an easy way to raise money. That’s why it makes sense to get financial advice before making any big decisions.
Big decisions benefit from great advice
As pension advice specialists, here is what Portafina can provide you:
**Data and statistics provided by Portafina. Primary and secondary reasons for taking tax-free cash in 2018 – 1st Jan to 21st Nov 2018