Should You Take Your Tax Free 25% Pension Lump Sum at 55?

[@TheRetirementCafe]

Should you take your pension tax-free cash at 55?

[@OlaleyeAkintemi]

It may not be a good idea for anyone who don't have a solid plan. But for someone who knows what he or she is doing I think it is a good idea if the lump sum is fairly big. By that I mean anything from £10,000 or more. For example, if someone gets a tax free cash of about £30,000 at 55 and he is able to add a little money to it and buy a 4 bedroom property for HMO let. With the equity from that property and a little savings from his rent income he can buy another property for HMO let within 3 or 4 years. If the process is repeated again that means within ten years he can actually build a property portfolio of 3 or 4 houses. He will be able to enjoy time, location and financial independence. With time, he can also diversify into other investments. Because someone took tax free cash does not mean they have to sleep at home everyday and not do any work or business. The tax free cash should be used to get out of the rat race of 9 to 5 job. By the way property investment is just one option of how to utilise a tax free cash, there are several others. Obviously many people like to play safe. They don't want to take the risk of investing in anything. According to Robert Kiyosaki people should learn to manage risk. If you cant learn to manage risk then don't invest.

[@jessicasquire]

In the 1990s I sold pensions on the strenght that the tax free lump sum would pay off most if not all of the mortgage and leave the investor with a pension for life. Most were over a 40 year term plus, I was not alone

[@Lemariecooper]

The approach of selling pensions with the promise that a tax-free lump sum would pay off mortgages and provide a lifelong pension was common in the 1990s. However, many factors can affect the outcome, including changes in the housing market and interest rates. It's crucial for investors to seek personalized advice and consider diversified financial strategies to ensure long-term financial stability

[@GudrunScharrer]

I have been a dividend focused investor for a long time. This does not mean I don't own growth stocks, I do. A well rounded portfolio should be a mixture of both categories. One way to minimize the anxiety out of stock market investing, is to make sure you keep a large cash cushion. I invest in the market, but never put all my money in market.

[@bigdee6207]

The problem in the UK is if you are the normal avarage person and you have a work pension in place by the time you retire you loose out on any help from the governent with energy bills and rent for most. The government see that you have a private pension in place and force you to pay your own way through your work pension. So it's counter productive to have a active works pension in place by the time you retire.

[@Stan1669]

My advice is take the whole lot and splash out to treat yourself because you don’t know if you will wake up tomorrow 😂😂😂

[@TheRetirementCafe]

Just be careful of the tax you will pay. And of course, hopefully, you may live a very long time…..

[@alanbrowne441]

Done, and I don’t care what happens in the future. The sooner I’m off of this shithole of a planet, the better.

[@PaulrB1968]

My situation is I have older pensions consolidated in one pot but also have unsecured debt, so was thinking of taking the 25% at 55 to pay off this debt, but I am not touching my workplace pension I have been in for 15 years and plan to stay in for the next 10 years.

[@Lillilady888]

Ive just retired at 55 after 37 years, paying into west midlands pension fund all that time. I have the paperwork to send back with 2 options: a smaller pot but with higher annuity payments, or larger pension pot and smaller annuity payments. I want to pay off my credit card (under 2000), i have no car or house payment commitments. The interest rates are pretty good at the moment, should i tie up half the larger lump sum for 5 years, the other half with some access. Or take the smaller lump sum (3 x less) but have £200 less a month? My dad is 90 and owns his house so should inherit half of this one day (unless needed for care). I plan to sell my hobby related items online later this year so may get income from that. Bearing all that in mind should i take the smaller or larger lump sum. A larger annuity is no good if i dont live a long life, thanks 😊

[@Banthah]

Funny how people are saying take it or don’t take it, and no-one has spoken about maybe taking some of it. You have the option to crystallise just some of your pension, take 25% of that amount, and leave the rest in the pot for later. Hopefully then it grows and you can crystallise again whenever you want, and take another tax free 25% lump sum of that amount. You can do this as many times as you like and leave the rest of your pot uncrystallised to grow… Everyone is different of course but this could be a much more tax efficient way of getting tax free cash continually, which should grow to a larger amount over time than taking the full 25% amount now

[@teessideman.8253]

Labour Government??

[@acewelding]

I don't think you can take 25% tax free, then wait a while then take another 25% tax free. If so, what time period until you can take the next 25% tax free?

[@Banthah]

@@acewelding Not 25% of the entire pot no. You can only do that once. But 25% of the amount you take at that time is possible as many times as you like, as often as you like. . Example, you have a £100k pot and decide to take out £10k. £2.5k is tax free, and £7.5k is taxable. This leaves you with £90k. So after a while you take out £15k of the £90k. £3.75k is tax free, £11.25k is taxable. The pot is now reduced to £75k. And so on… If you take out £25k tax free at the start, then that’s it, the remaining £75k, no matter what you do with it, is taxable. This is why some people talk about the magic figure of £16,676 p.a. - because 25% of that (£4,169) is tax free. The remaining £12,507 is taxable. But if you have the standard tax code, you have a tax free allowance on income of £12,507. So if you only take out £16,676 pa (and this is your only income) it’s all tax free! Pensions are amazing! But let’s see what the upcoming budget has to say about that…

[@acewelding]

That’s clearer than your previous statement.

[@robertclarke5787]

With interest rates moving upwards, it'd be interesting to know if this advice is still relevant?

[@andrewkingdon2000]

Hi Justin, so this video is now getting slightly out of date considering the recent tax changes (unlimited lifetime allowance) and the fact that the 25% tax free is capped at the old rate based on the old Lifetime allowance. So I'm going to throw you a fastball and pose a question. If a person (such as me) has 7 pensions over the years and I fancy taking some tax free cash out of one (but no taxable amount so I can continue paying up to £60k a year) is it sensible to crystallise one pension take 25% of that and none of the taxable amount and continue paying a large amount into the other pension that I'm still paying into. That's sort of recycling and not (legally) and also I can take tax free from other pensions as and when I feel the need. I ask as I'm 55 in almost exactly 6 months time and my brain is working overtime on this puzzle. I'd be interested in your thoughts.....

[@OlaleyeAkintemi]

Thank you for this video. I have been paying Pension for about 12 years but it is only few months ago that I really understand the importance and value of PENSION. Since then I have been doing more research and now I educate people on my KZbin channel about planning for their future. The future is not as far as many people think. I am just about taking my 25% lump sum from NHS this month when I turn 55 and will be sharing my experience on that journey.

[@flatout1967]

I've seen a few videos similar to this one recently. I don't see a strong reason not to take the 25% tax free cash. Live for today, you'll still have 75% saved within your pension pot.

[@TheRetirementCafe]

Hi - thanks for your comment. It's such a personal decision with so many factors to consider, including how big that pot is! Good luck for your future.

[@pw3591]

If you've got something you want to spend it on, fair enough go ahead and live it up. but I think what he's trying to say is why would you withdraw it, then just stick it in the bank ??

[@johnh4563]

I tend to agree with you, 25% coupled with savings could lead to a lifestyle change I.e. job you want to do, so still earning just enjoying the lifestyle change.

[@milolee1725]

Great video Justin. I had a very serious road accident whilst working for Royal mail aged 31.. Due to my injuries,I was compensated and pensioned off two years later. At 56 can I cash in that pension as financially,things are just getting harder day by day. Many thanks in advance for the advice.

[@TheRetirementCafe]

Hi Milo, you will need to check in with The Royal Mail pension scheme to understand you entitlement.

[@milolee1725]

@@TheRetirementCafe Ok Justin Thank you very much for your prompt reply. Have already passed on info about your channel to a few friends.👍👍

[@alangordon3283]

No leave it till you aren’t paying to any pension.

[@silondon9010]

Great channel just subscribed ,would love a video on AVCS and if there worth it to boast your pension

[@sirmikemurray]

the question should be how?

[@richardevans3253]

If you cash it all in , the first 25% is exempt from taxation. After this there's free allowance up to £12,570 . So ,if you have less than this you can take it all , without paying tax . Is this right ? Or is there someone who knows different .

[@rinakaur7245]

If you have 3 different personnal pensions, all with less than 30k each, are you able to access them at 55? But only 25% of each will be tax free?

[@Stan1669]

Best to take the whole lump sum and spend it because no one will know when you go to bed at night and guarantee you will wake up the next morning 😂😂😂😂😂😂😂😂😂😂😂😂😂

[@hws2152]

If someone withdrawal 25% tax free lumpsum post attaining the age of 55yrs (reasons for withdrawal could be vary) 1) the person will lose the benefit of employer contribution , 2) He/She will lose future growth of fund that mean the fund will n't grow in future from the date of withdrawal of tax free lumpsum,3) what happen when the underlying person is still in a job can he contribute in pension pot ? I am looking forward your kind reply Thanks and Regard

[@NathanJones-cq1dz]

I turn 55 in March 2028. I assume the change to age 57 instead of 55 comes into effect for the 2028/2029 tax year?

[@neilcook1652]

Excellent content thanks....

[@davidpearson243]

My wife is going to take her NHS pension in May she has been offered £11600 per year (index linked )and 77k lump sum or £14460 per year (index linked )and 42k lump sum we have had a long discussion are taking the higher pension and lower lump sum because of inflation and turmoil on the stock exchange

[@anbraban]

Take what u can pal. Live for today cus if it slumps nd you lose big time. You will never forgive yourselves. My pots about 128k atm nd dropping gradually. We should be given the option to cut and run whenever we want to if we feel there is a big loss Risk rather than being told it can't be touched without massive penalties. We pay in we shud av control. I av to wait a few years cus I'm 52 b4 I can av 25% but I will take just so I know iv got it. So live for today nd don't be swayed by con men advisor's only in it for themselves

[@nearlyretired7005]

I would take the maximum lump sum.It's your money.If anything unfortunate happens you will never see the money. Get it now!Investments in Stocks and shares are long term plan. My wife (who has an NHS pension) and I took our maximum of 25% tax free.You may find that even though you have a reduced pension,over time the shortfall of the pension will be made up by the profits in your stocks and shares portfolio.It has worked for us. My wife has had the same financial adviser for over 20 years and he told us to do this! I think worrying about inflation and a volatile stock exchange is a short term view remember,inflation will go down, and the stock market is quite buoyant at the moment,if you have a diverse portfolio. In the last 12 months we have made a £24,000 profit from our portfolio - £2000 a month after tax on top of our pensions which are index linked,and that's with it underperforming - (7% growth) Just above inflation at the moment! The choice is yours. Good luck

[@davidpearson243]

@@nearlyretired7005 I’m still think out strategy is correct NNS pension Is 12k of lump sum buys you 1k of index linked pension I still think you have to do well to make 1k per year off 12k of investment but not impossible with tax implications probably a close run thing The thing that swung it for was CPI is forecast to be 7.5% in September that the month the NHS uses for indexing so next April 7.5% increase We do have other pensions and S&S ISA too so we are doing very well at the moment off our investments this just takes a bit of risk out of our retirement plans

[@nearlyretired7005]

@@davidpearson243 I'm not a financial expert,you seem to have a plan what is best for you! The problem for any investor is this damn thing called inflation. My wife and I are doing were very well at the moment and our investments are working well. Good luck,and happy investing!

[@robertp.wainman4094]

Phew! Nothing beats NHS pensions!

[@johndupont8596]

Hello Justin - do it make sense to add £3600 in a SIPP if I am 65 and not working?

[@TheRetirementCafe]

Hi John, a simple question but many possible answers! Is it spare money you can afford. Do you need it back? When you do, how much tax will you pay? What you need to establish is whether the tax benefit you get when you contribute is greater than when you withdraw. Of course your beneficiaries may also benefit if you die before withdrawing.

[@johndupont8596]

@@TheRetirementCafe Thanks a lot Justin :)

[@user-gb1wk2fk7l]

I worked for 13 years from 1990 to 2003 , me and my employer were paying into pension,I stopped working at 2003 at age 45 and resided overseas, now I am 62 .. am I entitled to any pension,and if so, what are my options? .. Thank you

[@TheRetirementCafe]

Hi, take a look at this video where I tell you about the pension tracing Service kzbin.info/www/bejne/jWmrdpesnZiGi7M

[@Fidel-tk5rq]

Why I may be asked to effectively take my entire pension account if I'm trying to access my pension pot ,before my state pension age and stayed employed, to take the tax free cash ? Please advise

[@TheRetirementCafe]

@@Fidel-tk5rq sorry, I’m not sure I understand your question. Please can you reword?

[@Fidel-tk5rq]

@@TheRetirementCafe Many thanks for your prompt reply! I am 60 working for a construction company and my employer contributes to my pension pot( Legal & general) and I need to take the maximum tax free lump sum ASAP to pay my shared equity loan @3:05 you said, you may be asked to effectively take your entire pension account if you trying to take the tax free cash and some people opting out of pensions as a result! my question is what happens if I access my pension pot and withdraw the tax free cash while I am still employed and before my state pension age? Please advise.

[@TheRetirementCafe]

@@Fidel-tk5rq No issue taking your Pension Commencement Lump Sum (Tax Free Cash). Just check out my video on recycling Tax-free cash., so you dont get caught out by recycling. You can read pension tax-free cash recycling rules on the official HMRC website under the guidance on pension tax relief and unauthorised payments. Here are some helpful links to relevant HMRC documentation: Pension Tax Manual (PTM): HMRC’s Pension Tax Manual contains comprehensive details about pension recycling and other pension-related tax issues. Specifically, the recycling rules are discussed in PTM133810 and following sections. You can access it here: HMRC PTM133810 - Pension Recycling

[@Fidel-tk5rq]

@@TheRetirementCafe Does my employer need to enrol me back into the scheme after taking the tax free cash?

[@Fidel-tk5rq]

@@TheRetirementCafe I am in a company pension scheme , would I loose my employer contribution if I took my free tax cash?

[@wernesgruder1]

Keep it in the pension pot …..then the financial industry can keep taking their % charges on a large pot. Self interest again

[@familyoftwo7441]

Hi,ive a question,about 30 years ago i was in a job for 5 years,thay payed contributions and i did into a pension,the firm went bust and the pansion was frozen,being young and daft i forgot about it,im sure its out there somewhere earning money,how do i find out?

[@kinggeoffrey3801]

My wife has experienced this. She has at least 10k scattered around out there but won't do anything about it.

[@grahamsummers6344]

So, to confirm. £100000 pot I can take £25000 now tax free and the remaining 75k + any growth is all taxed at my income tax rate at the time I choose to withdraw? I wrongly assumed that 25% of any withdrawal would be tax free and 75% taxed.

[@nearlyretired7005]

Once you have taken the 25% tax free allowance,you are correct,any further withdrawals you pay massive tax on all of it! The taxman is always after us!☹ Or is that tax" person"

[@alangordon3283]

@@nearlyretired7005 no there’s other ways to do it .

[@OlaleyeAkintemi]

You are correct. 25% is tax free and 75% will be taxed at your normal tax rate. Either 20% tax or 40% tax. You need to put a plan in place before you collect the 25% lump sum so that it can generate additional income for you.

[@andrewkingdon2000]

It all depends if you crystallise the pot or not. If you drawdown then 25% remains tax free as you drawdown, but if you nominate the 25% initial withdrawal as your "tax free allowance" then everything you take after that is taxable at your marginal rate as income tax.

[@Banthah]

What ​@@andrewkingdon2000 said is spot on

[@bozley149]

Could i take 25%then pay that monthly in to avcs with bigger returns

[@terrybrown3486]

Not really as could be classed as tfc recycling which the HMRC doesn't let you do. Rules apply so go check them out.

[@yorks5852]

Save save save then die very rich, leave it all to your kids who will blow it all within 2 years 😢

[@johnmunro4952]

57? If you were already in you pension scheme before April 2021 and you have an unqualified right to take it at 55( such as a work place pension that's has no trustees involved etc), then you don't have to wait till 57. The government WANTS to harmonize the higher pension age, but it's not going to be law as such. Seriously look it up.

[@bluenose007]

This is only for private pensions

[@anbraban]

People take their 25% nd put it in the bank. Not becus of growth. Its so they actually get their real money while they can so they know they've got it rather than risk leaving it invested nd it dropping to such a bad state that they end up with nxt to nothing. Its better in their bank rather than down the drain. I'm 52 nd I want to get all my money out cus it's just one big con job. U work all ur life. Pay into a pension nd some jerk tells u you can't av it unless you want to end up paying high tax nd losing half of ur fund. Wish I'd never got involved with pensions nd blood sucking pension advisors

[@TheRetirementCafe]

Andy, a well-diversified portfolio of well run companies of the world has never permanently declined in value. The long term return on equities has seen annualised returns of over 10%. The key phrase here is the Long term, which of course is what pensions are for. Against a long term inflation rate in the UK of over 5%. Pensions are just a tax-efficient wrapper for investments. Cash is just eroded by inflation, its just you don't see it going down in value. I'm sorry you haven't had a good experience with your investments.

[@nearlyretired7005]

My wife and I have had a financial adviser for 20 years..We have made loads of money.Some are very good.

[@OlaleyeAkintemi]

@andy braban You must have a plan in place before you apply to retire or take lump sum. Never put your lump sum in the bank as Inflation will eat deep into it very fast.

[@faithpeace5093]

Can you take from the State pension? Thanks for this info.

[@TheRetirementCafe]

I’m afraid not, it is all taxable as income.

[@torus186]

If you are still earning and you take any money that you pay tax on from your pension your gross contributions into your pension are then capped at £4000 pounds a year, so not a good idea if you come into money and want to increase your pension.

[@rinakaur7245]

You may already know but i believe that limit has now gone up from £4k to £10k.

[@pataleno]

Avoid taking the 25% in my opinion. This should be the last thing you do.

[@Mojothepyrut]

Soon theyl make us work til 80 then what then take yer house to pay for care grrrrrr

[@SocialHigh]

Can I take 25% from my state pension?

[@TheRetirementCafe]

No I'm afraid not.

[@teessideman.8253]

57 at 2028😂. Labour are going to come after your pension. Live when you can while you can.

[@owenbowen2752]

Can I take 25 percent tax free every year