![]() As always, if you aren’t sure, take some advice.Many defined contribution schemes offer you a choice of how your contributions, and the contributions your employer makes on your behalf, are invested. It’s also important to carefully consider the tax implications of any withdrawals prior to making them. Make sure your pension scheme facilitates flexi-access drawdown as you may need to transfer your funds if it doesn’t. In summary, pension drawdown is essentially just accessing your money as and when you need to within certain tax rules. This is generally to ensure that it isn’t just your pension meeting your income needs, which can significantly reduce your tax burden if carried out correctly. Most high-quality advisers will work with you to build your assets within multiple tax vehicles alongside your pension. If you have already used up your tax-free cash and draw a significant amount from your pension in a single tax year, you could easily be taken into a higher tax band. As such, it’s important to be cautious prior to taking a lump sum out of your pension. Įxcluding your tax-free cash, all withdrawals taken from your pension are taxed at your marginal income tax rate. However, they will be making use of uncrystallised pension lump sum rules to achieve this, so only 25% of each withdrawal is paid out tax-free. ![]() This is to benefit from continued growth in the remainder of their pension whilst accessing a portion of their tax-free cash on a regular basis to aid tax-efficiency. In fact, many individuals will drip their tax-free cash out slowly. You don’t have to take the full 25% out in one go. Although, it’s worth noting that this is limited to 25% of previous lifetime allowance, which is normally £1,073,100. You can take up to 25% of your pension completely tax-free once you reach retirement age. This means, that if you wish to access your pension flexibly (in line with your spending requirements) in retirement, you will likely need to change your pension provider to achieve it. Pension drawdown is also commonly referred to as ‘flexi-access’ but, what very few people realise, is that most workplace pension schemes don’t provide a ‘flexi-access’ service at all. Pension drawdown is also known as ‘flexi-access’ There has never been a greater need to have a detailed understanding of your spending needs and consequently how to go about investing your money. ![]() This all means more choice, and responsibility for the consumer. Furthermore, whilst annuity rates have improved, people have got use to the flexibility investing their pension provides and most opt to invest their funds with the aim of achieving a higher growth rate. However, there could be some serious tax consequences if you took the entire amount out in one go. Today, you can theoretically access as much, or as little, of your pension as you want. Individuals also typically exchanged their pension savings for an insurance product called an annuity that would provide a guaranteed income for life. ![]() The Government capped how much income you could take from your pension unless you had other income sources. Before the introduction of pension freedom rules in April 2015, flexible pension drawdown didn’t exist.
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