Usually the earliest you can start taking money from your pension savings is age 55 however your existing pension provider will be able to confirm this for you.
When you first decide to access your pension savings you can choose to remain invested with your existing provider and, if they offer that facility, then select whether you would like to take some/all of your fund as a cash lump sum, or even as a series of withdrawals – this is known as Uncrystallised Funds Pension Lump Sum, or 'UFPLS' for short.¹
Many pension providers offer different options and so not all of them will be in a position to allow you to access your savings in this way. If that is the case, you can choose to exercise your right to shop around and find a provider who can, which is something that Age Partnership can help you with.²
How will I be taxed?
Should you choose this option, 25% of any lump sum withdrawal will be tax-free³ and the remaining 75% will be taxed as income at your marginal rate, which means that depending on the size of the pension pot, the withdrawal and any other income you are being paid, there could be a large tax bill left for you to pay.
However, depending on exactly how you choose to take your savings, there may be ways for you to reduce or even avoid a tax bill being generated, for example using Pension Drawdown instead.
Pension withdrawal (UFPLS) may be right for you if, for example:
- You have alternative sources of income or savings which can help you to fund your retirement.
- You have existing expensive debts that require a lump-sum to pay them off.
- You believe you may need the ability to dip in and out of your savings at irregular points of time in the future.
- You believe that any tax due on the withdrawal wouldn't be excessive and would be acceptable for your personal circumstances.
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:
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.
We also recommend that you take a look at the Government's independent Pension Wise website before making any decisions regarding your pension income options.
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
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 By taking a lump sum withdrawal your fund will reduce and the amount of money you have to turn into a future income will reduce.
² Full or partial cash withdrawal available through use of Pension Drawdown. A 1.25% arrangement fee is required subject to a maximum of £1,495 should you choose to proceed.
³ You may be able to take more or less than 25% tax-free cash depending on your individual circumstances.