Scotsman Money: expert urges caution on dipping into pension funds early

Russell Wright on dangers of depleting retirement savings.
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It’s tempting to see money in your pension and want to take it out, maybe because it feels more like your money if it’s in your bank account. But there are dangers to this – including potentially a large tax bill.

Many pension providers have now made it much easier to access your money. The recent trend is for people to keep their pension invested and take lump sums when they need cash. This flexibility is great, but it’s hard to know if you’re taking too much out.

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That’s why it’s important to consider whether swapping some of your pension pot for a secure income, known as an annuity, would be worthwhile. It’s not a flexible option, but it is dependable as it is guaranteed for life.

The most important thing to remember is you’ll almost certainly be able to get a higher income if you confirm your health and lifestyle details and shop around. This isn’t hard to do – an annuity broker or adviser will do the heavy lifting for you.

Finally, you don’t have to do this alone. You can learn more about the different options online. Pension Wise, a free government service, provides online guidance, and you can even get a free appointment with a pensions expert.

Most pension providers also have knowledgeable helpdesk staff.

Paying for financial advice can be useful as well, particularly if your retirement savings are spread across multiple pensions, savings accounts and property.

Just make sure the adviser is regulated by the FCA [Financial Conduct Authority] and you’re comfortable with the charges. You don’t have to sign up to ongoing advice if you just need initial advice to get you started.

- Russell Wright is defined contribution consulting senior vice president at Redington



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