Important things to consider:
Cash Withdrawal & Leaving Your Pot Untouched
Important things to consider
Whilst Pension Withdrawal (UFPLS) is a potential option for you and may be the most cost effective way of accessing your pension income, there are a number of considerations you should make:
- ● Your existing pension provider may not be in a position to allow you to access your savings in this way, as there is no legal obligation for them to do so.
- ● You can’t access your full tax-free cash allowance from your whole fund in one go. Instead, 25% of every withdrawal you make will be provided tax-free unless you choose to withdraw your entire fund. Your full tax-free cash allowance will only be truly taken at the point the very last pound is taken from your savings.
- ● If you withdraw all, or high levels, from your pension scheme this may leave you short of funds and income later in retirement. If these funds are your main source of retirement income you may want to consider how this may affect your ability to maintain your lifestyle.
- ● Many existing providers will continue to charge you for managing your pension savings, it’s important that you understand what these charges are, how frequently they will occur and whether they are fixed or likely to change in the future – there may be a more cost-effective way of accessing your savings. Many older pension schemes have significantly higher charges than if you were starting a new scheme today.
- ● Your existing provider may also charge you additional fees for making ad-hoc withdrawals and so again, it’s important that you know what these charges will be.
- ● It’s unlikely that you will be able to set up a regular income payment via pension withdrawal (UFPLS) and any withdrawal(s) you do make will require a processing time which will vary by provider and could potentially be days/weeks.
- ● Many existing providers will move where your pension savings are invested during the last few years before you reach retirement age into less volatile funds. This is known as ‘lifestyling’ and was used in anticipation that most people would have previously purchased an annuity rather than remaining invested during retirement. This may leave you in a situation where you are unhappy with the level of potential growth your savings are achieving whilst they remain invested in the existing fund. You should consider whether you want to move your pension savings into an alternative investment fund(s) which better suit your circumstances and attitude to risk.¹
If you are unsure whether Pension Withdrawal (UFPLS) is the most suitable option for you, our team of experienced Financial Advisors can assess your plans for retirement, taking into account your personal and financial situation, before recommending the best solution for you – request a free call back to find out more.
Leaving your pot untouched
Following the 2015 Government changes to pension legislation you may choose to leave your pension pot untouched until you decide you need access to the money.
If you choose to do so, you can still continue to contribute payments up to your annual allowance which is currently £40,000 a year for most people. This can help you to grow the size of your pension pot, giving you a greater amount of money to last you during your retirement.
If you were to pass away under the age of 75 years before accessing your pot, any beneficiaries could inherit the value of your pension savings tax-free. For those who pass away over the age of 75, depending on when your beneficiaries inherited any remaining funds, they could limit any tax to a maximum of their marginal rate of income tax.
Important things to consider
- ● Leaving your pension pot untouched means that your existing provider will keep your money invested, and as with all investments, the value of them can go down as well as up.
- ● Many existing providers will move where your pension savings are invested during the last few years before you reach retirement age into less volatile funds. This is known as ‘lifestyling’ and was used in anticipation that most people would have previously purchased an annuity rather than remaining invested during retirement. This may leave you in a situation where you are unhappy with the level of potential growth your savings are achieving whilst they remain invested in the existing fund.
- ● Are there any charges involved? Many existing providers will charge you for managing your pension savings, it’s important that you understand what these charges are, how frequently they will occur and whether they are fixed or likely to change in the future.
- ● Should you decide at some point in the future to turn your pot into a source of income, for example via pension annuity or fixed-term annuity, you should also remember that your future pot size may not guarantee you the same level of income that you may be able to secure now, and vice-versa, due to any possible changes in rates and economic changes.
For more information on leaving your pension pot untouched, we recommend that you visit the Government’s Pension Wise website where you can find further information on the important considerations you will need to make and the questions you should ask your existing provider.
¹ The value of your savings and the income taken from may go down as well as up. There is no guarantee of a fund performance meeting future income needs