Pension warning to millions of people who risk 'running out' of money
A financial adviser is warning millions of people to check the level of their pension contributions amid a risk they could ‘run out of money’ during their retirement. Rowan Harding, financial planner at Path Financial, says although everyone is generally entitled to 25 percent of their pension tax-free when they retire, if they take a large lump sum out or do not have enough in their pot, they could risk running out of cash in their old age.
She says: “When you’re approaching retirement, you will have to decide when and how much of your pot you should take. This will have big ramifications in terms of what you’ll get and how long that cash will last.
“There is a minimum age, currently 55, when you’ll be able to take some or all of your pension money. But accessing your pension too early may not be sustainable in the long term. It takes careful planning to understand when, how and what when it comes to taking your pension.
“While taking more from your pension pot early on could work for some, for example those who have a serious illness and need the funds to pay for treatment, the key aspect of pensions is that they are sustainable. Your pension is meant to last. As financial advisers, the most common question we get about pensions is ‘have I got enough in it?’"
David MacDonald, founder of Path Financial, said: "Most people are unaware that you can move your pension, so it aligns more with your ethics, and that should be what people are considering as well as how much is in it."
He encouraged people to think about switching to more eco-friendly investment pots as these can make a big difference for the planet, adding "the more people keep saving into green pensions the better".
In most cases, people will only get 25 percent tax-free on defined contribution pensions, after which you will be liable to Income Tax on any earned income after you’ve been paid £12,570, which is the current Personal Allowance and has been fixed since 2021/2022. The amount of Income Tax you’ll pay depends on how much income you get above the Personal Allowance.
If you also get the full State Pension, you will not pay tax on that, but it will count towards your Personal Allowance. So, if you receive income from a defined contribution pension, your first 25 percent will be tax-free, and you will then pay tax on anything above £1,067 as the full State Pension adds up to £11,502.40. The way the tax works on receipt of pension income is dependent on lots of different factors and it is always best to speak to an expert if you want your income to be tax efficient.
Rowan saud: “Remember, planning now to make sure you are saving enough for your future, knowing when and how to take your pension or if leaving the pension pot to continue growing is best for you, is always worth checking with an expert Financial Planner”.