Dipping into your pension funds?

October 3, 2019

If you are considering dipping into your pension funds it is worth taking a moment to consider the consequences. Enable’s IFAs in bishops Stortford can help you look at your options. Since the pension changes meaning once you turn 55, you can withdraw up to 25% of your pension savings tax-free people have been dipping into their assets but it can have a huge knock-on effect on your future finances. 

Dipping into your pension funds?

There are five key things you need to consider before dipping into your pension. Before you take any money out of your pension, you need to understand exactly how it might be taxed. While the first 25% of your pot is tax-free, anything after that attracts Income Tax at your marginal rate.

Taking it might also affect future tax. If you are likely to still be liable for Income Tax after you retire, you may want to wait until then to use that tax-free amount to pay yourself an annual tax-free lump sum in the future to minimise tax.

If you want to continue paying into your pension after you’ve taken some money out of it the first thing to do is check your pension provider allows you to continue making contributions. This might also have tax implications. Most can pay as much as £40,000 a year into a pension and earn tax relief on that money. But once you’ve accessed your pension, your annual allowance may drop substantially.

Dipping into your pension could affect your eligibility to benefits. If you are claiming means-tested benefits, you should seek expert advice before you access your pension. You also have to ask yourself about how much you might be reducing your future income. Taking money out of your pension could put a serious dent in the income you’ll enjoy once you retire, you will have reduced the overall capital and that will reduce your future growth as there is less invested.

It is important to take professional advice before making any decision relating to your personal finances. Information within this document is based on our current understanding and can be subject to change without notice and the accuracy and completeness of the information cannot be guaranteed. It does not provide individually tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK. We cannot assume legal liability for any errors or omissions it might contain.

Levels and bases of, and reliefs from, taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. No part of this document may be reproduced in any manner without prior permission.

The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency.



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