The ability to access your pension funds without having to buy an annuity has led to pension product providers being inundated with calls from policyholders since the start of the tax year. Anecdotally, only a small percentage of policyholders have actually gone ahead and made lump sum withdrawals. Clearly many people understand that pension funds were primarily designed to provide an income for life rather than easy access to a cash lump sum from age 55.
Of course there are circumstances where people may wish to access some or all of their funds in view of the new pension freedoms. Indeed we have had a handful of clients who have approached us with this in mind, particularly with a view to paying off expensive loans or credit cards.
In many circumstances the pension providers have to apply an Emergency Month 1 Tax Code and this can lead to surprisingly high tax deductions from the lump sum taken and the need to look at reclaiming overpaid tax.
This whole area of choosing how to take funds from your pension and planning for a suitable lifetime income taking tax into account has become complex and advice is particularly helpful in this area.
We have produced a Q&A Factsheet on Pension Freedoms and please contact us if you would like a copy of this.