Just because you can take your pension cash to spend how you wish does not mean you should.
Chancellor George Osborne’s flexible access pension deal has run for a year now.
The latest figures from the Association of British Insurers (ABI) show £4.7 billion of pension cash was withdrawn in the first six months of the scheme – with nearly 167,000 people opting to take £2.5 billion as cash.
The question is whether retirement savers better off taking the cash or keeping the money invested?
What to consider before taking pension cash
With that in mind, here are some points to consider before taking the money:
- Do you really need to withdraw all my pension money?
If you are taking the cash for a specific reason, like paying down debts to save on outgoings, then the answer is probably yes.
If the cash is just going in the bank, compare what you are likely to receive in interest against the growth if the money was left invested.
- Do you need that 25% tax-free cash or are you just frittering away a windfall?
This is money you probably cannot replace from savings and may be cash you will desperately need in later life if you have a small pension pot
- Don’t take the annuity offer from your pension provider
- Shop around for best rates. You may receive significantly more guaranteed income from a specialist firm, especially if you qualify for an enhanced annuity due to poor health or lifestyle choices
If I reinvest my pension, what is the best strategy, what charges will I pay and how will switching my cash impact on my pension finances?
- If you are an expat, look at the benefits of switching to a QROPS
Your financial adviser should tell you about the benefits and features of a QROPS offshore pension for expats if you are planning to live overseas.
- A lot of pension cash is going into buy to let property – but is that a good place for your money?
Rent may provide an income, but what’s the yield compared to other investments and have you considered the overheads – tax, voids without tenants, maintenance, purchase and selling costs, how quickly can you sell, letting costs and insurance etc
Ask about tax and what happens when you die
Don’t forget to ask your financial adviser what happens to your pension cash when you die – the rules are different for pensions, QROPS, ISAs and cash – some attract cash and with some, your money disappears when you die.
For more information about QROPS and the benefits it provides, download the iExpats QROPS Guide or complete the Get Advice form.
