Why planning is key in pension withdrawal

Portafina’s MD comments on HMRC’s latest findings on pension withdrawal

Planning is key

“The HMRC have published details that people are releasing more from their pensions than ever. Whilst increasing flexibility leading up to retirement is a good thing along with more people in auto-enrolment accruing more benefits than they had before, there’s still a few things to consider.

“I can see why pensions are being likened to bank accounts, due to people having more choice than ever. The fact is, this couldn’t be further from the truth. Withdrawing money that’s not the tax-free element could result in you getting hit with a massive tax bill, not to mention effecting any state benefits you may have. And most importantly, you could run out of money in retirement.

“Having said that, these issues emphasise the importance of financial planning. The FCA points out in its Retirement Outcomes Review that once people withdraw money from their pensions, they tend to regret it later. And this could be because they don’t have a plan in place. Not having a plan to follow could mean that you trip over into the higher rate tax band or lose benefits. Frankly, would you want to pay more than you needed to?

“The other thing is, what will you do with the remaining fund? Whilst the average withdrawal is around £8,500, it’s essential that you get the outstanding amount working as hard as it can to try and recover that amount. 

“Whilst advice comes at a cost, you are usually better off talking to an adviser who can help you explore all the options that may be available to you.

“And like with most things, there are pros and cons to taking money from your pension. However, looking at your situation, what is right for you and making sure a plan is in place is the best way to ensure that you aren’t going to regret anything once you’re further down the path.”

Jamie Smith-Thompson

Managing Director

Call 0800 304 7288 for a friendly chat about your pension

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