![]() ![]() You will also be bringing the £268,275 into your estate so it’s, once again, a careful balancing act. The remainder of withdrawals from your pension will be taxed at your marginal rate. Although this may differ for those who had Lifetime allowance protection in place or have pensions with enhanced benefits so it’s worth exploring this with an adviser. With the recent changes to the Lifetime Allowance rules, this affectively means £1,073,100 will be placed into drawdown and you will be limited to £268,275 of tax-free cash. As aforementioned though, to access your full 25% of tax-free cash, you need to move 100% of your pension into drawdown and ‘fully crystalise’ your pension. Once they reach retirement age, they then use their tax-free cash to pay the remainder of the mortgage down. Contributions to pensions are gross of tax so they grow their fund at a rapid rate. Instead of overpaying their mortgage from their income that is subject to income tax and national insurance, they instead contribute their income to their pension. People often choose to take out a large sum of tax-free cash to pay down what is left of their mortgage. Taking out your entire tax-free cash entitlement from a large pension pot It will also most likely bring the £100,000 into your estate for inheritance tax purposes so be mindful of this. ![]() Once you do this though, the remaining £300,000 and any future growth will be subject to income tax when you want to access the money. ![]() Let’s take another example: if you reach retirement age and your pension pot is £400,000, you could choose to access your full tax-free cash entitlement of £100,000. Using your full tax-free cash entitlement with a smaller pension pot You can leave the remaining £30,000 in drawdown and the rest of your pension untouched until you need it. Moving the £40,000 into drawdown is simply an administrative process. In this example, you would simply place £40,000 into drawdown and withdraw your £10,000 of tax-free cash. You need to deem the portion of your money that you want to take 25% of as being in drawdown with your pension provider. Let’s say you had a pension pot of £500,000 and you want to take out £10,000 of tax-free cash to buy a VW Polo for a very lucky grandchild. This is, of course, something you can do. It may be that you want to take out a small amount of tax-free cash from your pension at retirement age to perhaps buy a car or extend your home. Taking small portions of tax-free cash: a flexible approach ![]()
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