The new Pension Freedom rules mean if you are approaching retirement you should really seek independent financial advice and ensure that you know all of the options and possible opportunities and pitfalls that these new rules bring.
Until recently you could take some of your pension pot as cash, but not all of it, unless the total of all your pensions was less than £30,000. Before the changes, you could withdraw up to 25% tax-free but you’d need to use the rest to buy an annuity or to set up “income drawdown”, where your money remains invested and you draw an income from it.
Now you can take as much of your pension pot in cash as you want to. The first 25% of what you take will still be tax-free, but the remainder of what you take will be taxed as income. You may hear this called an Uncrystallised Funds Pension Lump Sum (UFPLS) – it just means you have the flexibility to take out as much money as you want when you want it.
The tax consequences for the taxable 75% could, however, be expensive for you, as, depending on how much you take and how much other taxable income you have in the tax year, it could push you into the higher-rate tax bracket, and/or cause you to forfeit your income tax personal allowance (where taxable income for the year exceeds £100,000). It could also push some of it into the additional rate bracket (currently 45%, where taxable income for the year exceeds £150,000). So judicious planning will be needed.
If, alternatively, you want to take some money out but leave the rest in to give you an income, you can use Flexi-Access Drawdown (FAD). Under FAD, you can take out up to 25% entirely tax-free and leave the rest in the pot to give you an income, which will be taxable when you take it, whenever you want for as much as you like. You no longer need to have a minimum guaranteed income to use drawdown.
Finally, the age at which you can start using your pension is still 55 but its set to rise to 57 by 2028. Goldstone Wealth are very happy to discuss all your options with you so please get in touch.