Any remaining cash or investments from the money that came from your pension pot will form part of your estate for Inheritance Tax purposes.
Whereas any part of your pension pot unused wouldn’t normally be included in your estate for Inheritance Tax purposes. In addition, if you die before age 75 your pension pot will pass tax free to your beneficiaries, provided the money is paid within two years of the pension provider becoming aware of your death. If you die after the age of 75, then the remainder of your pension pot will still pass free of Inheritance Tax, but any benefits withdrawn will be taxed at the beneficiary’s marginal income tax rate.
So, if you have other assets and investments that are sufficient to maintain your standard of living in retirement, then taking income from other non-pension assets first can be a very tax efficient strategy when passing on your estate to loved ones.
Q1: Have you considered what the tax implications are?
At the heart of any pension transaction you undertake, tax planning is a major consideration. Only the first 25% of the amount that you drawdown from your pension pot is tax-free, and the remaining 75% is taxed as earned income
Q2: Will your money last the duration of your retirement years?
Before taking the cash, it is crucial to think about whether you will have enough money to last the duration of your retirement. It’s not a one-off decision: you should regularly review your choices throughout your retirement, as your needs evolve, and income needs may change.
Q3: Will your pension scheme allow you to cash in your pension pot?
If you’re convinced that cashing in your pension pot is the right move for you, you need to ensure that your pension scheme allows you to do so. If not, it means that you’ll need to transfer your savings into a suitable pension scheme to be able to access your cash.
Q4: Are you aware of the companies running pension scams?
Pension savers getting scammed out of their retirement savings is a real issue. The problem is that many of these scams look perfectly legitimate so are not easy to spot. Others offer investment returns which are too good to be true. You can visit the FCA’s Scam Smart website, which includes a warning list of companies operating without authorisation or running scams – www.fca.org.uk/scamsmart. You can also search the FCA register to check on whether firms or individuals are authorised and registered with the FCA to give that type of advice – https://register.fca.org.uk/
Q5: Have you sought professional financial advice about your plans?
Not seeking professional financial advice can be very risky, especially when it comes to deciding how eventually to take your pension. If you get it wrong, it could be very costly in terms of tax and have a considerable impact on your retirement lifestyle and standard of living. We’ll make sure that the action you take is the right one for you, your family and your needs.
If you are thinking about cashing in pensions at 55, we highly recommend you review your own situation.
To speak to an experienced Cardiff-based Pensions Adviser, contact Tony Thomas on 07585 592494 or email@example.com