Think twice before raiding your pension pot
Are you considering taking a 25% tax free lump sum from your pension to help with the cost of living?
Resist if you can, here’s why.
We understand that there can be financial pressures at the moment, but paying for them by raiding your pension when you’re over 55, and have the opportunity to access it, could put your long-term financial future at risk.
It may be tempting to take your 25% tax-free lump sum but, if you can wait it could make a difference to what funds are available later. Remember you may be living off your pension for the rest of your life and taking out a 25% lump sum now could negatively impact your final pension pot value.
If you’re over 55 and still working, taking a taxable payment from your pension may have an immediate tax impact.
You should also bear in mind that any money not yet withdrawn has the potential to grow - although of course it might fall in value too.
Taking money early may reduce how much you have when you retire because you’ll lose out on any potential for growth on the sum you’ve withdrawn.
The impact of removing money now, particularly if you take more than the tax-free lump sum from your pension, will also limit the amount you or your employer can pay into your pension in the future.
We would recommend taking expert advice before taking money from your pension. You can speak to Pension Wise - a Government Service that offers free, impartial guidance to help you understand your pension options. If you would like us to book you an appointment with them, please call us on 0800 622 323 or you can contact Pension Wise direct on 0800 138 3944.
Alternatively, to find out more about your pension benefit options visit here.
Professional advice can be helpful. NFU Mutual Financial Advisers advise on NFU Mutual products and selected products from specialist providers. They’ll explain the advice services and the charges. Financial advice is provided by NFU Mutual Select Investments Limited.
Things to remember:
- The value of your pension can go down and you may get back less than you invested.
- The tax treatment of pensions depends on individual circumstances and may change in the future.