Research* has revealed that one in five over-55s with a private pension withdrew a lump sum during 2019, although the study does suggest that, for many, this was probably not a financially sensible course of action.
‘Stash the cash’
The most popular reason for accessing pension wealth was to put the money into a savings account, with one in four respondents doing so. Around one in five people who withdrew money from their pension, spent the proceeds on home improvements.
At first glance, the research appears to imply a sensible approach to pension withdrawals. However, in reality, shifting a taxed lump sum from a tax-efficient pension simply to place the proceeds on deposit makes little financial sense. This is partly due to potential tax bills, but also relates to inheritance rules which mean most people would be better off leaving money in a pension until they need the cash for income or specific spending requirements.
It’s clearly always essential to take professional advice before making any pension-related decisions, particularly in the current economic climate. So, if you are considering accessing your pension soon, get in touch – we will help you make the best decision for you.
*Canada Life, 2020
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated.