6 Things to consider before taking cash from your pension

1.How do you plan to use the money?

It can often seem like pension money becomes real only once withdrawn and brought into the ‘real world’. This perception might explain why many access their tax-free cash as soon as possible, currently at age 55, though this will rise to 57 soon. However, withdrawing has implications: money in a pension grows tax-free, while withdrawn funds in savings or investments may be taxed. You can place this cash in an ISA to avoid taxes, but the annual limit is £20,000. Additionally, bank deposits are included in your estate for inheritance tax purposes, whereas pensions are exempt, and extra assets might affect state benefit eligibility.

Therefore, withdrawing tax-free cash should be carefully considered. It might be beneficial for reasons like paying off debt or helping children buy a house, but withdrawing it just to keep it idle might not be wise. Remember, you don’t have to take the full 25%; you can withdraw only what you need and leave the rest in the pension.