Outline to pension freedoms in the UK

[whitedesire]

This takes place literally in a few days. Just want to remind Brits on here that just because one can withdraw ALL of their pension pot out as cash (in most cases), what you should be aware of. It will not be unusual for someone to have a massive pension pot, some also just a tiny pension pot. But to give an example:

If you aged over 55 and are working and earning, say, £30,000 a year, and you have a pension pot of £100,000 that you wish to withdraw.

The first 25% of the £100k will be tax free which leaves £75k to be taxed - add that to your £30k earnings = £105,000. Tax of £35,643 will need to be paid.

There is no way you can avoid paying tax we know that, but I think a good way of "making it work" is use the facility of "drawdown" where you withdraw the 25% tax free portion and withdraw small amounts over the years.

Food for thought. My option would be to analyse how much money I need over the year, withdraw the 25% tax free element and spend that over the next few years, then withdraw an amount on a yearly basis depending on my financial needs if you are going down the "withdraw all of my pension pot route".

Yes, the existing options are still there, i.e. an annuity pension and for the rest of your life, but from understanding these are of very poor value. There is also the QROPs option where you opt for your whole pension fund to be managed/withdrawn in an regonised pension scheme overseas - erm!!!

Just for all to be aware, there are scams going on out there also whereby they are after your pension pots! Beware.