Personal Pension

In April 2015, some of the rules which governed the level of withdrawals from Personal Pension plans were relaxed. The main change in rules was the removal of ‘caps’ to how much you can withdraw from a pension. These changes are often referred to as ‘pension flexibility’.

Within Personal Pension plans it is generally possible to take 25% of the fund value as a tax free Pension Commencement Lump sum. The remainder can be taken as taxable ‘income’. Following the changes made in 2015 the ‘income’ can be taken all at once as a taxable lump sum but this is rarely a good idea. Generally, the funds in a Personal Pension are needed to last for the rest of your life.

Benefits of Pension Fund Withdrawals

• You do not have to take a set level of income at outset. You can vary this to meet your needs.
• You can take out a tax-free lump in stages when required.
• You can control your income to reduce the income tax that you pay.
• When you die, any remaining fund can be passed to the beneficiary of your choice.
• The fund when invested can benefit from tax preferential growth.

Downside of Pension Fund Withdrawals

• If you withdraw too much income or have poor investment performance you could run out of money in your lifetime.
• If you take high withdrawals, this could affect means tested benefits.
• If your investments fall in value, you may be forced to reduce your income.
• Taking high levels of income in the early years of the plan could have a negative impact on the capital value of your plan in the long term.
• You will be liable for paying the costs and management charges of running the pension plan and managing the investments.
• The scheme pension may have produced a higher capital value over the term of your life. There are no guarantees involved in transferring a pension.
• Further disadvantages attached to Pension withdrawal can be found if you click here.