Extracting cash from your pension might seem an obvious source of income during the Covid-19 crisis, but complex tax rules mean it should only be a last resort, says LEBC Group’s Kay Ingram
As the lockdown has devastated parts of the economy, many will look to access longer-term savings to bridge their income gap. For those aged 55 and over, who can flexibly access pension savings, this may seem an obvious choice.
Yet hidden tax traps lie in wait for those who do so without taking financial advice. In 2020, more than 900,000 individuals will reach age 55, a trend that is set to continue, so questions about how to access pensions are likely to rise.
Money can be withdrawn from a pension without incurring any tax liability and most savers are familiar with the concept of a tax-free lump sum. But any balance withdrawn is subject to income tax and few understand the detailed rules.
