People who have saved into pension funds in the UK have the option to draw income from the age of 55. In the current uncertain financial climate, should you draw cash from a pension now?
Six months ago, when the coronavirus pandemic took global markets by surprise, the outlook for investors did not look good.
There were immediate comparisons with the worldwide downturn of 2007. People feared losing everything as stocks dropped by the hour as the full implications of the new virus became apparent.
For some, there was a temptation to take the cash and pull out of investments if they could. This spooked the markets further and what followed was a period of volatile weeks.
Investors who were already 55 years of age were faced with a financial dilemma; take some cash before the value of their investment dropped further; or hold their nerve and stay invested.
Although things have started to return to some kind of normality, people around the retirement eligibility age face further decisions.
Decisions about drawing pension income
Although the pandemic is still ongoing around the world, markets have recovered much of the early 2020 losses. In some cases, stock values have soared.
As always, there have been winners and losers.
The same is true for retirees who are now faced with the decision about drawing cash from their pension pots once again.
Anyone who drew cash early in the crisis will have reduced their overall pot. Any growth in recent months will have been from a much lower starting point.
Those able to draw cash from pension funds must now think very carefully. Should they hold back and allow investments to grow further before they consider taking a regular income?
Most economic signs are positive for the year ahead. Much of the damage has already been done and stocks have become more resilient to the weekly news updates about jobs and trading.
However, with another key Brexit milestone on the horizon and no virus vaccine yet confirmed, there are still many risks to be factored in.
Existing income should be considered
Perhaps the first consideration for anyone thinking about taking cash from their pension is how much other income they are earning now and over the coming years.
While the first 25% (quarter) of cash taken from a pension pot will be tax-free, anything beyond that will be taxed.
Anyone earning over £12,500 per year in the UK is liable to standard taxation. Therefore, any additional income above this would be taxed.
Also, once you start taking an income from your pension the amount of tax relief you are eligible for can drop depending on your circumstances.
There are many considerations, especially as we are all living longer. Taking the maximum tax-free lump sum and then immediately drawing income from your pension can affect the money you will have available later in life for personal care or to support other members of your family.
Get independent pension advice
Getting the full picture when it comes to pensions is never easy. It is always best to seek trusted independent financial advice before taking decisions that could adversely affect you in the future.
We are here to support you. With many years of experience helping clients get the best from their pensions, we’ll give you the time you need to consider your options.
For us, it’s all about putting you at ease so that you can make the best decisions for your circumstances.
Please call us on 0808 1234 321 or email firstname.lastname@example.org to start the discussion about how best to start enjoying income during retirement.
Please be aware the value of investments or income from them can fall as well as rise. We are here to help you make informed decisions as you put important things in place for you and your family.
* Logic Wealth Planning provides independent financial advice in Manchester, Bury, Rochdale, Cheshire, and the surrounding area, but not limited to the region.