Enable’s IFAs in Bishop’s Stortford are always looking for ways to help with financial planning. When it comes to pensions and savings, we all need to have some but it is also important to know how to spend efficiently.
When it comes to drawing on your pension funds there are tax-efficient ways to withdraw your pension and other savings. The first thing to consider is the order in which you draw on your savings as it will impact on how much tax you’ll pay in retirement. “Prioritising which savings you use up first in retirement can be almost as important as saving itself.” Says, Kate Smith, head of pensions at Aegon.
Everyone’s circumstances and financial needs are different and Enable’s professional IFA’s are available to help with individual circumstances. But these are some tips to help you maximise your retirement savings.
1. Don’t hold excess cash in your bank account to avoid paying income tax on any interest earned over your personal Savings Allowance.
2. Don’t rush into taking money out of pensions Lifetime ISAs (LISAs) and ISAs as they will continue to grow tax-free.
3. Use your ISA savings first as payments are tax-free, so they won’t affect the amount of tax you pay.
4. Cash in your pension tax-free cash sum. You can take up to 25% of your pension fund, tax-free.
5. Use your personal tax allowance. If your income is less than your personal tax allowance you won’t pay any income tax.
6. You should generally access your pension last after accessing your ISA, and pension tax-free cash, as any pension income will be taxable under the income tax rules.
Delaying taking your pension income will help it to last longer. And beware, once you start taking a retirement income from income drawdown or a flexible annuity, future pension savings will be limited to £4,000 a year, down from £40,000.