From April 2015, persons aged 55 years or older, with defined contribution personal pension pots, can consider cashing in the value accumulated in their fund. Certainly, anyone considering this course of action should take professional advice from their independent financial advisor.
The following steps are advised by the Pensions Wise website:
Here are some next steps if you’re interested in taking cash:
Cash in chunks:
- check with your current provider if they offer the option and what they charge – if they don’t offer it, you can transfer your pot but you might be charged
- check if your pot has any special arrangements attached to it that could mean you get a better deal, e.g. a guaranteed value at a certain time
- make sure you know how much tax you’ll pay on any money you’re planning to take out
Taking your whole pot:
- check with your provider if you can take 25% tax free
- make sure you know how much tax you’ll pay on the remaining 75%
- if you want to reinvest the money, talk to a registered financial adviser first
In the majority of cases, if you cash in your whole pension pot 25% of the amount received is tax free; the remaining 75% is treated as part of your taxable income for income tax purposes.
When the payment is made by your pension company they will estimate the income tax due and deduct this amount before sending you the balance. They will provide you with a P45 that shows the taxable amount refunded and the income tax they have deducted. These details will form part of your income tax assessment in the tax year that you cash in your policy.
It is important to realise that the amount of tax deducted may or may not cover the income tax due. It will have been based on an estimate of your total income when the payment is made. If you are a high income earner, subject to income tax at a marginal rate of 40% or 45%, or likely to be a higher rate tax payer if the taxable 75% of your cashed in fund is included, then take professional tax advice before spending or reinvesting your fund proceeds.
Source: New feed.