With this option, your pension pot isn\u2019t re-invested into new funds specifically chosen to pay you a regular income, and it won\u2019t provide for a dependant after you die. There are also more tax implications to consider with this option.<\/p>\n
Your pension pot reduces with each cash withdrawal. The earlier you start taking money out of your pot, the greater the risk your money could run out. What\u2019s left in your pension pot might not grow enough to give you the income you need to last you into old age \u2013 most people underestimate how long their retirement will be.<\/p>\n
The administration charges for each withdrawal could eat into your remaining pot. Because your pot hasn\u2019t been reinvested to produce an income, its investments could fall in value \u2013 so you\u2019ll need to have it reviewed regularly. Charges will apply, and you might need to move or reinvest your pot at a later date.<\/p>\n
Once you take money out of your pension pot, any growth in its value is taxable, whereas it will grow tax-free inside the pot \u2013 once you take it out, you can\u2019t put it back. Taking cash lump sums could reduce your entitlement to benefits now or as you grow older.<\/p>\n
Three quarters of each cash withdrawal counts as taxable income. This is added to the rest of your income \u2013 and depending on how much your total income for the tax year is, you could find yourself pushed into a higher tax band.<\/p>\n
So if you take lots of large cash sums, or even a single cash sum, you could end up paying a higher rate of tax than you normally do. Your pension scheme or provider will pay the cash through a payslip and take off tax in advance \u2013 called \u2018PAYE\u2019 (Pay As You Earn). This means you might pay too much tax and have to claim the money back \u2013 or you might owe more tax if you have other sources of income.<\/p>\n
Extra tax charges or restrictions might apply if your pension savings exceed the lifetime allowance (currently \u00a31,030,000 2018\/19 tax year), or if you have less lifetime allowance available than the amount you want to withdraw.<\/p>\n
If the value of your pension pot is \u00a310,000 or more, once you start to take income, the amount of defined contribution pension savings on which you can get tax relief each year is reduced from \u00a340,000 (the annual allowance) to a lower amount (the \u2018Money Purchase Annual Allowance\u2019, or MPAA). In 2018\/19, the MPAA is \u00a34,000. If you want to carry on building up your pension pot, this option might not be suitable.<\/p>\n
If you die before the age of 75, any untouched part of your pension pot will pass tax-free to your nominated beneficiary or estate, provided the money is paid within two years of the provider becoming aware of your death. If the two-year limit is missed, it will be added to your beneficiary\u2019s other income and taxed in the normal way.<\/p>\n
If you die after the age of 75, any untouched part of your pension pot that you pass on \u2013 either as a lump sum or income \u2013 will be added to your beneficiary\u2019s other income and taxed in the normal way.<\/p>\n","protected":false},"excerpt":{"rendered":"
Taking money from your pension as and when you need it You can use your existing pension pot to take cash as and when you need it and leave the rest untouched where it can continue to grow tax-free. For each cash withdrawal, normally the first 25% (quarter) is tax-free, and the rest counts as… Read more »<\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"_links":{"self":[{"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/posts\/2516"}],"collection":[{"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/comments?post=2516"}],"version-history":[{"count":0,"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/posts\/2516\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/media?parent=2516"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/categories?post=2516"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.rothesaybennett.co.uk\/news\/wp-json\/wp\/v2\/tags?post=2516"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}