So, apparently, 1 in 6 people are planning to take their pension as a single cash lump sum. In case you don’t know, if you are over age 55 on 6 April 2015 you could draw out your whole pension pot as cash.
Tempting? Yes. Especially as the average UK pension pot is worth around £30k which could go a long way towards a nice holiday, new car or paying off that mortgage or credit card.
BUT…before you bite the bullet there are some things that you need to know, Here’s the lowdown on taking that cash.
- MOST IMPORTANTLY: THIS CASH IS YOUR PENSION which has to last you for the rest of your life (unless you have other wealth). Ask yourself, “do I really need all of it now?”.
- You will probably need to pay tax on part of any cash you withdraw.
- If you do pay tax, the first 25p in every £1 you withdraw will be tax free.
- Any tax you have to pay on the remainder will be at your marginal rate.
- If you don’t spend all the cash you will need to think about where to invest it, the return it could earn and tax you will pay.
- If you don’t take cash from your pension then it will carry on being invested with interest growing tax free, like an ISA.
So, before you book that world cruise or order the new kitchen, just think about the implications.