Should I access my pension savings?
Accessing your pension pot at 55 can have great benefits for everyday living.
Whether it is to help you and your family cover a debt or if it is for a well-earned treat it has to be a good thing. However, you should always consider it with caution and not on your own. This article helps to explain why access your pension savings with care.
Can anyone access their pension savings?
Well, the first important point is not everyone can. This is because we all have pension schemes which are unique to our own needs. The “Pension Freedoms” act came into being in 2015, so any scheme designed before then may not include the access facility. However, this is not the end of the story. With professional advice you could be able to transfer your savings to a scheme which offers these benefits. There are many different types of pension scheme – generally the only two types you will not be able to access is your State Pension and any unfunded pensions.
What then are the benefits?
The act allows you to take as much from your pension pot as you wish from the age of 55. You can do this in various ways: one lump sum amount; a number of lump sums taken out when you need the money; or you can drawdown an income from your pension. With all options, the money which remains in your pot continues to be invested for your retirement. Clearly, this is an asset which should be looked into, but there are hurdles which could make the whole venture very destructive if you are not careful.
Why the need for caution?
First of all, the most important issue is the fact that your pension pot – by definition – is for long-term savings. It was never meant to be used for short-term needs during your working life. Therefore, even though accessed money could come in very handy, you always need to ensure that there will still be enough money left in your pot to see you through your retirement. It is therefore essential to understand how much funds you have available and how changes will affect your pot in the long-term.
The great benefit of taking money out of your pension pot is the first 25% is tax-free. After this point, any money will be charged at your normal income tax rate. If you suddenly have a large amount of money coming into your account (either as a lump-sum or as drawdown, it could push you into a higher tax bracket. So, you need to ensure that if you do go over 25%, you understand how any tax you have to pay will affect your current finances.
So, accessing money from your pension pot is not just about dipping into your regular savings account. True, the benefits could be great and everyone should at least find out how they can use their pension pot as efficiently as possible. But in order to understand what you can and cannot do now and in your retirement, you are going to need the support of a professional advisor.
Using professional advice
When pension freedoms were first introduced, the government set up guidance websites (such as Pension Wise) to help people navigate through their new pension options. These websites are excellent guides but they cannot match options to your own unique circumstances, needs and finances. For professional and tailored advice to you, you will need a regulated financial advisor. They are overseen by the Financial Conduct Authority (FCA) and will be able to offer advice specific to you.
If you are considering your pension, consider using a regulated pensions specialist like Portafina or, view the guides at The Pensions Advisory Service.
