Financial experts are warning that millions of people across the UK are not adequately prepared for retirement.
This means that insufficient pension contributions during their working years could leave them dangerously exposed in later life.
As things stand, everyone is generally entitled to 25% of their pension tax-free upon retirement, but if you take out a big lump sum all at once, you could risk running out of money. This is why you need to plan long before – as soon as you start paying into the pot.
The minimum age for accessing your pension is currently around 55.
While the freedom to spend your pension is an exciting feature of retirement, it is important to understand and strategise your finances intelligently to ensure you have longer-term protection. Some people may need to access money urgently for, say, medical treatment, but for others, pensions need to be more sustainable.
Retirees usually only get 25% tax-free on defined contribution pensions. After that, you become liable to Income Tax on any earned income above £12,570, which has been the existing Personal Allowance since 2022. The amount of Income Tax is determined by how much income you earn above the Personal Allowance.
If you qualify for the full State Pension, that will not in itself be taxed, but it will however be factored into your Personal Allowance. It’s recommended that you speak to an expert if you want your retirement income to be tax efficient.
If you are retirement planning in Cheshire and need financial advice, talk to our specialist team at Hartey Wealth Management today.
