New figures from HMRC show that in the third quarter the year, 327,000 people accessed their retirement savings using pension freedom rules – a whopping £2.4bn.

This is a 27% hike in the number taking cash from their pensions compared with Q3 of 2018 and a 21% increase in the value of those payments.

Since George Osborn introduced pension freedom in April 2015 a total of £30.74bn has now been drawn down from the nation’s pension funds.

Pension freedom has enabled people to make far more flexible use of their pension pots – and that has proved important for many as annuity rates have continued to plummet.

However, there are dangers attached for those who don’t take professional advice – and that applies to many with smaller pension pots. The Financial Conduct Authority (FCA) itself has “expressed concern” that some people are not properly investing them, leaving them potentially short of funds for their retirement.

So what are the golden rules of pension freedom1Look at all your options.     

1- These include:  Look at all your options. These include:

• leaving the pension pot untouched
• purchasing an annuity
• getting an adjustable income (Flexi Access Drawdown)
• Spreading withdrawals over tax years
• taking cash in chunks (Uncrystallised Funds Pension Lump Sum)
• cashing in the whole pot in one go
• mixing any of the options.
• The Pension Advisory Service (https://www.pensionsadvisoryservice.org.uk) has more helpful advice on that.

2–Carefully consider the tax implications before withdrawing more than the 25% initial lump sum

While this seems an obvious statement, a great many people have been doing precisely that in order to either clear debts, enjoy a few luxuries or invest in something offering what appears to offer a promising return – and incurring hefty tax bills as a result.

Only the first 25% of your total pension savings are tax-free, and any subsequent withdrawals will be subject to income tax.

It may be that you have sufficient unused personal tax allowance in a year to withdraw more funds free of tax but be careful and seek advice if you need to

Remember also that this is your future pension incom

3-Don’t access it before you have to If you’re still a long way from your planned retirement, and this pot of money represents a sizeable part of your future retirement income, don’t be tempted to dip into it before you really need to. Before converting any of it into a luxury cruise or sports car, bear in mind that (on average) if we get to the age of 65, we still have around 20 years of life beyond that point to fund.

4-Shop around

Your pension provider will be keen for you to keep your funds with them – especially when it comes to converting it into a future source of income. Remember that you are not obliged to stay with them and, if it’s an annuity being offered, there are often better rates to be found if you shop around. This can be particularly relevant if you could qualify for an enhanced annuity because of a long-term health issue.

5-Get advice

While smaller pension pot holders are not obliged to, getting a timely piece of advice on what to do / not to do could be well worth the investment.

 6-Don’t get scammed!

According to the Pensions Regulator, victims of pension scams in the UK last year lost an average of £82,000. Worryingly, 63% of savers trust someone offering pension advice out of the blue. And it’s not necessarily those with little grasp of money matters most at risk: research shows that that University graduates are most at risk of falling for pension scams…

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