Fears that the Chancellor would limit the amount of tax-free pension savers can take from their pots have been allayed today.
Taking a tax-free lump sum of up to 25 percent of your pension is a popular retirement perk.
And people have rushed to withdraw money from their funds in the run-up to the Budget to protect them from a cap they feared was about to be imposed.
Savers typically use their savings amounts to pay off mortgages and other debts, and spend a lot of money on home renovations, new cars and vacations in retirement
Financial planning: Taking a tax-free lump sum of up to 25 percent of your pension is a popular retirement benefit
“Those who have built up significant pension pots will be relieved that the Chancellor has not introduced new limits on tax-free lump sums,” said Steven Cameron, pensions director at Aegon.
‘Currently, individuals can normally withdraw 25 per cent of their pension pot as a tax-free lump sum upon retirement, with a recently introduced maximum of £268,275.
‘There was speculation that the Budget could include new limits, such as capping the tax-free lump sum at a much lower level, perhaps £100,000.’
Cameron says many people have planned their retirement finances on the assumption that they would be able to withdraw 25 percent of their entire fund, and that if they did not there would have been widespread outrage.
“If you save for your pension, you won’t have access to your money until you’re 55, rising to age 57 in 2028,” he explains.
“People earn tax breaks in exchange for putting money aside to build a retirement that could last for decades.”
How do tax-free lump sums work?
Many people approaching retirement age may have a mix of defined contribution and defined benefit pensions.
Available premium pensions: These take amounts from both employers and employees and invest them to provide a pot of money upon retirement.
People over 55 can withdraw 25 percent of their pension pot in advance tax-free, or choose to withdraw it gradually in parts.
By not withdrawing the entire amount at once, if your pot grows in the future, you will have more tax-free money available to withdraw in the longer term.
Defined pensions based on salary: Final salary or average salary pensions offer a guaranteed income after retirement for the rest of your life.
Your options for a 25 percent lump sum vary depending on the generosity of your plan’s terms, so you’ll need to check the specific details.
