As a result of the pension reforms, more and more under-65s have accessed their pension pots early, according to the Financial Conduct Authority (FCA). But the worrying news is that one in three failed to seek financial advice when doing so.
More choice, more risk
Previously, once you’d taken your tax-free cash from your pension savings, you used the remainder to purchase an annuity. However, this has now changed. You can now use your pension pot in any way you wish. But with this freedom comes responsibility…and tax implications. This is why financial advice is so important.
For example, only the first 25% of your pension savings will be tax-free and the rest will be taxed at your highest marginal tax rate. This means that if you decide to withdraw a lump sum in a single tax year, you could end up paying more income tax compared to withdrawing the money gradually.
Figures in the FCA report also show that since 2015, 32% of savers who took all their money out of their pension pots placed their savings into an ISA or other saving plans. By accessing a pension early, savers could be giving up future tax-free investment growth in exchange for comparatively low-growth assets.
Book your Free Pension Review
Research has found that financial advisers can help retirees increase their retirement income by nearly 50%, so to help you make the most of your pension savings, arrange your Free Pension Review by calling Calculis on 01794 525500.