What Should I do with my Pensions?
Depending on your age you have several different options you can choose when deciding what to do with your pension fund. If you are 55 or over one of the most popular benefits of having a pension is being able to take 25% of you pension tax-free.
What you decide to do with this cash at the end of your working life is up to you, you can choose to treat yourself, pay off debts or treat your loved ones.
However, there is another option - you may choose to leave your cash in your pension. This can be a better decision than taking the cash and putting it in a bank account where it will lose value due to poor interest rates and inflation.
Unless you have a definite plan for your pension then it may be a more financially viable decision to leave your cash in the pension pot. Your pension will continue to earn interest and grow in value. You may eventually decide to take the tax-free cash, instead of taking it at one time, you may choose to take a little bit at a time over the course of a few years.
Do you need the money?
An important factor when deciding whether to take your tax-free cash is determining if you need the money, If you are approaching retirement and you don’t need the cash immediately then it may be a wiser decision to leave the cash as this could make you better off into retirement.
The following example help illustrate how not taking the tax-free cash could be more beneficial than taking the cash early, a saver with a £100,000 pension gets £25,000 tax-free, and the remaining £75,000 is either turned into an income using an annuity or moved into a drawdown pension. Any income after the tax-free cash is taxable at their normal rate – either 20 per cent, 40 per cent or 45 per cent.
Added to this, if a saver decided to leave the cash in the pension pot, this money could continue to grow per year so the saver would also benefit from the growth of their pension pot. Overall determining whether you need to take your tax-free cash is up to you, after all, you have worked hard to save your money, and a financial adviser can help put things into perspective when coming to make a decision. About My Pension can connect you with an adviser in your local area who will be able to advise you based on your financial objectives.