One of the unintended consequences of the new pension freedoms is that many of us will have the ability to potentially withdraw either a decent chunk or all of our pension pots and since April we’ve had a few calls into the office from people who want to take this approach.

Some are calling because they genuinely need our support to make important decisions at such a pertinent time. Some are calling because they have a range of different pension pots and want to organise them, for the first time in a while take a step back and understand how their retirement could look…

….and others just want to release the cash.

Broadly speaking I firmly believe that the new pension freedoms are positive.

Allowing us to have freedom on what we do with our money is a positive move in the right direction.

However when considering how to use these new freedoms there’s a few things which should be considered.

Firstly the impact of tax…

For individuals withdrawing a decent chunk of their pension out it’s likely there will be some tax to pay.

Therefore whilst for some it might seem superficially attractive to take a big chunk of cash from your pension scheme the reality that it’s more sensible to sit down and come up with a plan which allows you to do what you want to do…..but doesn’t leave you with a painful tax bill.

Secondly the importance of planning….

If, like many of us, you’ve been saving into your pension for many years it’s likely that the original goal was to ensure the money you’d accumulated would last as long as possible. Whilst taking all the money out of the pension initially seems attractive we believe it’s fundementally important before you take the cash is to have a plan.

This starts with asking yourself a number of questions. Firstly what do you want to achieve in the next few years? Secondly do you intend to continue to work or are you stopping work for good? Thirdly how much are you reliant on the money in your pension(s) to provide an ongoing income?

If I’m frank these questions are just the ‘starters for three’ and there’s plenty more questions to answer before making any decisions about what to do….however thinking about these questions will give you a starting point.

Thirdly, the benefits of working with a professional…

I appreciate that some people want to make their own decisions when it comes to their pension pots. However we’ve found with the clients we work with that highlighting the impact of tax if they decide to withdraw their pots together with discussing some of the benefits of planning help our clients make better decisions.

Some pension providers won’t release funds to clients without them speaking to a professional first and we’ve declined to work with clients who have asked us just to ‘sign the form’ instead opting to explain the impact of tax and the importance of planning and going through a process which enable the clients we work with to make well informed decisions.

Now consulting us comes at a cost and we’ve had some who have decided that they didn’t want to work with us. However for the clients who have decided they needed support and help they’ve told us that paying a professional was the right way to go due to the fact that have a clear picture of their financial future together with saving a huge tax bill which often outweighs the cost of advice.

Only you know the right approach to take and it’ll be dependent on a number of factors. However to ensure that you’re not paying unnecessary tax and for a clear picture of your financial future paying a professional to work with might be the smartest move you’ve made in a long time.

For more information on working with us please contact us on 08450 568 959, or email us at CassieDaems@cervellofp.co.uk