One thing which has not changed for a long time is the tax free cash (TFC) which someone can take from their personal pension.
For a long time, the maximum has been 25% of the value of the fund at the time of taking it. The earliest age you can take this is age 55, and because of the pension freedoms brought in by George Osborne (when he was Chancellor), this has never been easier.
All that needs to be done is to transfer the personal pension into what is called drawdown (basically another type of pension contract). Then, the 25% (or anything less than that) can be withdrawn.
What we sometimes do when planning a client’s retirement is transfer all of their pensions into drawdown, and then they can extract the 25% TFC at that time. In many cases, a client may not need the cash straight away, but for ease of use later, we normally extract the TFC and put this to a General Investment Account (GIA). This is an investment product which means the money can still earn, although not tax-free admittedly.
By doing this, it allows people to draw out tax-free sums as and when they need it, without all the hassle of extracting it from their pension bit at a time. This is the kind of flexibility people like and actually need in retirement, and gives them access to lump sums as and when they need it.
There are still some older policies that have a higher tax-free amount available, but they are few and far between now. Legislation many years ago brought in the 25% limit, and that is what applies to the vast majority of pension policies today.
You will find a lot of company/occupational/final salary schemes vary quite significantly in what they give out as tax-free cash, but it is not normally as generous as 25%.
So if you are old enough, in need of cash and think your pension is big enough to last you through retirement, why not give yourself some breathing space and access your TFC.
For further information on any aspect of financial advice and how MAP may be able to assist you, please contact us on 0345 241 1808 or email us at: firstname.lastname@example.org.