Martin Lewis warns people with pension pots are set to be hit with £22,500 charge

Martin Lewis has issued a pensions warning which could cost people with pots a MASSIVE charge. The BBC Sounds podcast host and ITV regular spoke out on the latest episode of his BBC Sounds podcast, in a handy warning for those looking to draw down.

The Money Saving Expert said if you access the funds while you’re still paying into the pot, you might accidentally reduce your pensions allowance for the year. And that risks an unwelcome bill on your pension from the taxman, Mr Lewis said.

Martin said: “My thought was for example someone who doesn’t need the money might decide they want to take 25 per cent out in order to buy a property to rent out which is not something you can do within your pension, you can invest in property in your pension but you it have to be in a pension fund.

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"Now one of the issues is if you take money out of your pension, you can reduce the Annual Allowance, the amount you’re allowed to contribute to your pension in future.” Martin's guest, a pensions expert, said: “If you take just the 25 per cent lump sum, and you have zero income, that’s the tax-free amount, then there’ll be no impact to your annual allowance.

“If you start taking income on top of the tax free cash, from your pension, that could be draw-down or an annuity, whichever method, then your annual allowance will drop down." The guest went on, telling him: "To £10,000 from a maximum of £60,000 at the moment.”

If you’re a higher rate taxpayer you risk having to pay £22,500. Martin added: “Despite your earnings you’re putting in. So that’s really something to be aware of. If you’re going to start taking money out of your pension but you might want to contribute to your pension in future, that’s the big nodal point where you’ve changed the status of your pension and you’ve reduced the amount you can contribute.”