When it comes to taking money from your pension, careful planning is essential to minimise your tax liability and maximise the longevity of your savings.
Here is how we recommend you structure your pension drawdowns effectively.
Use your tax-free lump sum wisely
You can withdraw up to 25 per cent of your pension as a tax-free lump sum.
However, instead of taking it all at once, consider withdrawing smaller amounts over time.
This can help you avoid moving into a higher tax bracket if your other income sources push you close to the threshold.
It should be noted that there has been some speculation as to whether the Government will scrap this scheme in the upcoming Budget announcement on the 30 October 2024.
Balance your taxable income
Pension withdrawals beyond the 25 per cent tax-free amount are treated as taxable income.
It is worth spreading out your withdrawals to stay within lower tax bands, reducing the risk of paying higher-rate tax.
Try to balance your income from pensions with other sources, such as ISAs, which can be withdrawn tax-free.
Consider your personal allowance
Each year, you are entitled to a personal allowance (currently £12,570) before paying income tax.
Keep this in mind when planning withdrawals, as exceeding this allowance could result in unnecessary tax charges.
Get professional advice
Your pension is a crucial part of your retirement plan, and structuring your withdrawals properly can significantly impact your long-term financial health.
Speak to a financial adviser to explore the most tax-efficient strategies for your unique situation, ensuring you make the most of your pension savings.
Please get in touch with one of our financial advisers for more information.
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