How much of my pension can I take tax-free?

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Many over-55s are unaware that they can access 25% of their pension pot tax-free.

A surprising 43% of individuals over 55 need to be made aware that they can withdraw 25% of their pension pot tax-free, according to recent research[1]. Knowledge could lead to better decision making when it comes to accessing pension savings.

Similarly, 52% of those surveyed between the ages of 50 and 54 were also unaware of this rule, indicating a widespread lack of understanding about pension withdrawal options.

We answer the important questions regarding tax-free pension withdrawals.

How much can I withdraw from my pension tax-free?

Typically, most people can withdraw 25% of their total pension pot tax-free, although this may vary depending on the type of pension plan and if you’ve exceeded your lifetime allowance. The remaining 75% is subject to Income Tax when withdrawn.

When can I take my tax-free lump sum?

Generally, you can access your pension savings, including the tax-free lump sum, at age 55 (rising to 57 in 2028). In rare cases, you may be able to access your pension earlier due to ill health or a protected scheme.

Can I take my lump sum in smaller amounts?

This depends on your pension product and its terms. Taking smaller withdrawals over time can be beneficial in most cases, as it allows for potential growth and tax-efficiency.

Should I take my lump sum immediately?

It’s essential to consider the longevity of your pension savings throughout retirement. Taking too much too soon could result in running out of funds later in life. Delaying access to your savings may allow for additional growth.

Are there any implications to be aware of?

Accessing your pension savings can impact state benefits, such as Universal Credit or Pension Credit. Additionally, taking a tax-free lump sum won’t affect the amount you can contribute to your pension plan, but accessing taxable income may reduce your annual allowance.

Professional financial advice

Understanding your pension withdrawal options and seeking professional financial advice will help you make informed decisions and maximise your retirement savings. To learn more about how we can help you, please contact us today.

Source data: [1] Opinium conducted research among 2,000 UK adults aged 18+ between 12″16 May 2023 for Standard Life, part of Phoenix Group. Results have been weighted to be nationally representative.

Important information: A pension is a long-term investment not normally accessible until age 55 (57 from April 2028 unless the plan has a protected pension age). The value of your investments (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.

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