AND WHY NOT?

There are two good reasons why you might not want to take out all of your pension funds now or next year.

The first is the simple fact that if you take them all out and use them up now, they will be gone, and that could make things harder for you in your later years. The second reason is tax. The first 25% you take out will be free of tax. The rest, however, will be taxed as if you had earned it in that tax year. It is added to your other income in working out how much tax you have to pay.

If you have an income of £10,000 you are likely to be paying no tax. If you then take £30,000 out of your pension fund, £7,500 is free of tax, but the remaining £22,500 is treated as income and would then put your total income up to £32,500. That means all of the £22,500 would be taxed at 20% (£4,500).

Taking even larger sums out of your pension fund might mean paying even higher rate tax on some of it. So it is worth working out your tax position before taking out some or all of your pension fund. In fact, you may even want to delay taking chunks of your pension until you stop working so as to pay as little tax as possible. We can help you with your pension planning.