Skip to main content

Posted: by & filed under Tips and Advice

Changes recently introduced by the government now mean that some people are able to choose to take their pension as one lump sum on retirement, instead of receiving a regular payment or annuity.

This might seem a great opportunity, but even if you are eligible to do withdraw a lump sum, it's worth considering first whether it is really the best option for you.

What are the conditions?

  • You must be aged 60 years or over.
  • The total value of your pension pots must be worth less than £30,000. This total must include all work pensions and other pensions except for the state pension.
  • One of your individual pension pots must have a value under £10,000 and the rules of the pension scheme allow it. This must be a Personal Pension Plan, and you can only withdraw lump sums a maximum of three times.
Piggy Bank and Calculator Showing Lump Sum Pension Advice
Should you withdraw a lump sum?

Benefits

  • You could get a higher income than from an annuity. If you choose to save all the money, you have the potential for earning a good rate of return with some clever investment planning.
  • You could invest part of the money and use the rest to finance something you or someone in your family needs. For example you might choose to make alterations to your home which your health demands or to make it more accessible.
  • You are in control of your own money and you can invest it to offer greater flexibility for future withdrawals.

Drawbacks

  • There are tax implications if you take your pension as a lump sum. You have 25% tax free, but the remaining 75% is liable to income tax in the year in which you draw the money.
  • Once it's gone, it's gone. Most people are reliant on their pension as a form of income for their retirement years. Taking your pension in one go may not be such a good option if you're not confident about managing that amount of money wisely. It would be very easy to get carried away and spend more than you planned.

Further changes

The government is currently reviewing proposals for further changes to pension rules. It is possible that in April 2015 all restrictions on pension withdrawals might be abolished.

There are a lot of issues to consider regarding taking a lump sum pension. A financial adviser will be able to help you decide on the best course of action for you, with an understanding of your particular financial and personal circumstances.

« Back to Blog