For many, the major perk of reaching 55 is being entitled to access the money in your pension fund if you want or need to.
Better still, the first 25% of your pension pot can be accessed without paying tax on the income, and this tax-free cash boost will not use up any of your Personal Allowance (£11,000 for 2016/17). Of course, once you have accessed your full tax-free lump sum you will have to pay income tax at your highest marginal rate on the remainder of your fund if you wish to take more of it in cash.
This tax-fee cash is also called your pension commencement lump sum (PCLS), and can be taken as a lump sum or in smaller amounts (depending on which retirement income product you go on to select).
What many people approaching retirement do not realise is that they may be entitled to more than the usual 25% tax-free lump sum.
Checking if you are entitled to more
How much you are entitled to take as a tax-free cash lump sum is dependent on the type of pension scheme you currently have.
The most common reason for a larger tax free lump sum is based upon when the policy was written.The last ‘old’ style personal pension policy was issued on 30th June 1988, and any policies effected on or before this date often contain benefits including enhanced tax-free cash entitlements. They were mainly aimed at the self-employed who did not have a work place pension scheme.
For employees, if you have worked for the same company for a long time then you may also have a larger tax-free cash entitlement which can be either up to 25% of the fund value or calculated using a formula based on years of service – whichever is greatest.
If you can answer yes to any of the following, you may be entitled to more than the usual 25% PCLS:
If you find that you do have more than a 25% tax-free lump sum entitlement then your retirement income options may be a little more restricted, so our specialists will need to discuss some important considerations with you.
For instance, if you wish to access your tax-free cash then you will generally have to withdraw it as one lump sum, as you will not have the option to take it in smaller instalments. Furthermore, you will only have the option of a lifetime annuity and be unable to move your pension fund to flexi-access drawdown or arrange a fixed-term annuity.
Discover your retirement income options today
Remember, you are best speaking to a retirement income specialist to be absolutely sure what your entitlements are. Retirement Line’s specialists are highly knowledgeable and will offer you a FREE pension policy review to find out any hidden benefits or penalties that you need to consider.
Find out how much tax-free cash you are eligible to access and what income your money could guarantee for you. Speak to one of our friendly specialists in retirement income today on 0800 652 1316.
Retirement Line work on a non-advised basis providing you with factual information to enable you to make an informed decision.