When can I cash my Pension?
This is a question that is asked regularly. While most people understand that they can’t start to receive money from their pension plan before the age of 55 at the earliest, there are many who don’t fully understand how they receive benefits once they retire.
It is important to remember that a pension is not a savings account. You don’t put your money into it, add to it here and there, and then, once you are old enough, take your money out.
A pension is a more complicated financial product. In order to understand it you need to think about what the aim of a pension is and to make sure that you are financially secure throughout your retirement.
New pension rules mean more flexibility more for those looking to use or invest their pension fund
In his March 2014 Budget speech, the Chancellor George Osborne announced major changes to pensions and how you can use it.
The new pension rules are due to come into effect from April 2015 and will offer a new and greater degree of flexibility to those with a pension. The flexibility is in regards to how you can withdraw money from your pension fund, and how you can choose to use or invest the sum.
- Before the Pension changes, you could withdraw up to 25% of any defined contribution pension tax-free. However, if you choose to withdraw more than that amount you would have had to pay 55% tax on this.
- Under the new rules, from April 2015, any tax you choose to withdraw above the original 25% would be taxed as a regular income. So this would be at 20% if you are a basic tax-rate payer, although this depends on how much taxable income you have earned in that particular tax-year.
- The current pension rules mean that the majority of people are forced to use their current pension to buy an annuity. An annuity guarantees you a fixed income for the rest of your life in return for your pension fund, however, in recent years many people have found these to provide little value for money. The new rules mean that this is no longer to be the case as there will be a wider choice of options available. This includes allowing you to keep your pension fund invested whilst you withdraw an income, or you could even withdraw your entire pension fund in one go.
Whilst these changes to pension rules do offer more choice and flexibility, it’s more important than ever to seek expert advice on the best approach to planning your finances after retirement. You can seek financial advice by getting in touch with an expert financial adviser at FinancialAdvice.co.uk by asking a question online or by calling 0800 092 1245.
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