08:04 25 December 2013
When you retire one of the biggest benefits of having pensions is a tax-free lump sum that comprises of 25% of the total amount of your pension. The question is whether or not it is a benefit to take this lump sum before purchasing an annuity or making other investments. It can be a difficult decision.
Many people find the tax-free cash option on their pensions to be a valuable option. It is important to understand what the advantages and disadvantages of taking a lump sum from your pension. The majority of people look at it as a great way to get a lump sum right away that you can do anything you want with and you do not have to worry about taxes.
There are some questions you should consider before making a decision regarding your pensions and tax-free cash:
Your tax-free lump sum can be taken out of your pensions at age 55. This is not dependent on your retirement status though. The amount you can remove from the account once you reach this age is 25% of the total value. If your fund is worth £100,000, you can remove £25,000 as the lump sum.
It is important to make sure that you meet the criteria to remove the full amount. There are some instances, where you may not be able to obtain the entire amount. Before you consider removing money from your account, you may want to consider obtaining financial advice.
Pensions can be confusing. There are many options available and it is important to make sure that you have a clear understanding of what those options are in order to make the best choice for you and your retirement.