Are you looking to take a cash lump sum from your pension to pay for something other than to provide for your retirement?
Increases to the cost of living, rising inflation and soaring energy prices mean that many more people are looking towards their pensions as a possible way to help meet current costs.
Whether you’re looking to pay off debts, or simply need help with day to day living costs, please think very carefully before looking to take a cash lump sum from your pension. There may be other more suitable options available to you, so please don’t rush into any decisions that you may later regret.
Before making any decisions, we would strongly urge you to consider the following:
- Pensions are designed as longer term investments, to support you in later life. If you take a cash lump sum from your pension, there will be less money available to give you an income when you come to stop working.
- Once your pension pot has been exhausted, you need to think about how you will be able to afford to live in the future.
- For debts, there may be other debt repayment options, and debt advice may be able to help you choose which solution best suits your needs.
- There are tax implications of taking money from your pensions, such as:
- Any cash lump sums are classed as taxable income, where 25% is normally tax free and the remainder is taxed as your marginal rate. Depending on your overall tax situation for the year you could end up paying more tax than you expected.
- As cash lump sums are classed as income, it could also affect your entitlement to any state benefits.
- Once you start to take money from your pension, you will be restricted in the tax relief you receive on future contributions.
- Consider seeking further help - There is lots of free material available, not least through MoneyHelper, who provide various free tools to help understand your financial situation, giving simple steps to help you decide what you should do.
If you are still looking to take money from your pension, we would strongly suggest you seek financial advice. Please see our Pensions Advice page for further details.
Making sure you’re financially comfortable later in life is important and long term investing offers you the potential to help achieve that.