The pension clinic ⤵️ 💷 Expert advice on why you should not take your 25 per cent tax-free lump sum in one
If you have already crystallised your whole pension pot and spent your 25 per cent tax-free lump sum, you will be withdrawing the £20,000 a year from your drawdown pot. You will get £12,570 of it tax-free , and you will pay basic rate income tax of 20 per cent on the remaining £7,430.But if you have not yet taken your tax-free cash and left your pension uncrystallised, you can crystallise the £20,000 you need each year.
But if you only crystallised £20,000 of your £400,000 pot , there would be £380,000 left. If this £380,000 grew by 4 per cent through investment growth in the first year, it would grow to £395,200. Many people also like to see their financial gifts to children and grandchildren put to good use while they are still around to see the benefits, so it could be worth using your tax-free cash to help your family members — but only if you can afford to do so, and it won’t affect your living standards in retirement.
The 58 year old, from West Sussex, has a pot worth nearly £1 million and, as he is over 55, he is able to take 25 per cent of his savings as a tax-free lump sum.
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