Posted on July 14th, 2014 | Categories - Uncategorized
Speculation over the future of the pension tax-free lump sum is over, at least for a few months!
Savers with a Personal Pension, Stakeholder Pension, SIPP and some work place pension schemes, can take up to 25% of their pot once they reach the age of 55. The tax-free lump sum is important to most retirees and is often used to repay debt, pay for home improvements or simply to create additional income in retirement.
Tax-free cash speculation
In the weeks leading up to each Budget and Autumn Statement, the Personal Finance pages are awash with speculation that the tax-free lump sum will be abolished. However, Steve Webb, the Pensions Minister, has now announced that the tax-free lump sum will not be scrapped.
Speaking to New Model Adviser, a publication for Financial Advisers, Mr Webb said: “Yes there is money to be had there but it would take forever to do it in a fair way and I think it would take away one of the most attractive features of pensions savings.”
He continued: “There would be one heck of a transitional period.”
Pension savers will welcome the announcement, but should also remember that with a General Election due in less than a year, the certainty might be short lived. Ed Milliband, has already called for the amount of tax-free cash to be limited to £36,000 per person and with public finances remaining stretched, the issue is unlikely to be off the political agenda for long.
When should you take the tax-free lump sum from your pension?
Whether you should take the tax-free lump sum is down to your own personal circumstances, but it is certainly a popular option if you want to:
- Repay an interest-only mortgage
- Repay other unsecured debt
- To create an additional, tax-efficient, income
- To boost your savings
- Make large one off purchases or home improvements
Of course there are reasons not to take the tax-free lump sum, for example doing so could reduce your income each month and there may be better alternatives.
We’ve explored the options in more detail in our recent article: When should you take the tax-free lump sum from your pension, click here to read it now.
We’re here to help
Our team of Independent Financial Advisers are experienced in developing retirement income strategies for clients the length and breadth of the UK.