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Pensions
By Mike Freer, of BWCI
A READER has expressed confusion about how much money they can take out of their pension pot, saying that one friend has advised that they can take it all out, while they have read somewhere else that they can only withdraw 30%.
They have written in to ask which of these scenarios is correct.
The short answer is that both are correct, but only in certain circumstances. It depends on how old you are and the size of your pension pot.
Here is an overview. You must check with your pension administrator, as different combinations of lump sums may affect the tax payable. This is a complex area of the income tax law.
Assuming that you’re not in serious ill health, if you are under 50 then the only lump sum option available would be for pension funds of up to £19,000.
These can be taken all as cash and are taxed as income. However, there is an overall maximum cash limit of £50,000 across all of your pension savings in your lifetime.
If you are aged between 50 and 75, then you can take up to 30% of your pension fund as a tax-free cash payment, regardless of the size of your pension pot. The final option only applies if you are over the age of 60.
You can cash in a pension pot of up to £35,000 in full. Of that, 30% is tax-free and the rest is taxed at 10%.
The government has recently issued a consultation paper covering this area of the law, so it is possible that changes are proposed/introduced. These would usually be effective from the commencement of a new tax year.
