Martin Lewis issues pension warning to workers born over five-year period

Money Saving Expert Martin Lewis has sounded the alarm for workers of a certain age, warning that they could be at risk of losing out on a significant sum from their pension savings.

In his latest episode of the Not The Martin Lewis podcast, alongside pensions guru Charlotte Jackson, Martin highlighted the potential pitfalls for those born in 1969, 1970, 1971, 1972, or 1973. As these individuals approach the age of 55, it's crucial they heed his advice if they're considering dipping into their pension funds early, reports the Express.

The financial journalist stressed the importance of being aware of the tax implications and the longevity of retirement funds. He cautioned: "If you know anyone thinking of taking money out of their pension (or nearing age 55). This is a must listen as get it wrong and it can cost you £10,000s. Do spread word."

Delving deeper into the issue of life expectancy, Martin advised his audience not to underestimate how long they might live, stating: "Don't underestimate your longevity. Someone aged 65, on average a man will live another 20 years, a woman another 22 years."

He added the sobering statistic that there's a 10% chance for men to reach 96 and for women to hit 98, urging listeners to consider this when planning their finances: "But you have a 10 percent chance as a man of living to 96, and a 10 percent chance as a woman of living to 98 and it's worth factoring that in."

Factors such as health, smoking habits, and current age also play a role, according to Martin. He wrapped up by emphasising the critical nature of understanding the tax consequences of withdrawing pension funds: "Admittedly your health, whether you smoke and your current age all factor in."

Martin concluded with a stark reminder of the high stakes involved in pension planning, highlighting that getting it wrong could lead to a loss of tens of thousands of pounds.

"You generally get 25 percent of the money in your pension tax free, and the rest is taxed," he explained. "But what counts and when it's taxed is when it gets complicated."

Martin then likened a private pension pot to a giant Swiss roll. He said: "Most of the roll is sponge and you have your luxury jam bit in the middle. Well the sponge is the taxable part of your pension and the jam running through the middle, that's your tax free amount."

"If you take your money out of your pension using it like a bank account, you get a slice of the Swiss roll. And that slice contains whatever amount you've taken from your pension, 25 percent of it is tax free, and 75 percent of it is taxed at your marginal rate, whatever income tax rate you're paying."

Martin added: "But if you do what's called a draw-down or annuity then you can just take the jam, you can take 25 percent of your pension totally tax free and you're paid the rest via the draw down or annuity later when you take it."

This strategy allows individuals to potentially pay less tax by taking the remainder of their pension at a time when they may be earning less, such as after retirement, thus benefiting from a lower tax bracket or the full £12,570 personal allowance.