Pension savers given warning over withdrawing cash

Savers are being issued a stark 'stop and think' warning from pension experts about the potential pitfalls of withdrawing cash from their retirement funds.

"Taking money out of your retirement pot early or withdrawing too much, too soon could have disastrous consequences over the long term. What's more, pensions benefit from generous tax treatment on death, meaning it often makes sense for your retirement to be the last asset you touch." Tom elaborated: "Consider a healthy 55 year old with a £100,000 pension pot. If they withdraw £5,000 annually, increasing yearly in line with inflation at 2 per cent, and enjoy 4 per cent annual investment growth after charges, their fund could be depleted by age 80. Given the average life expectancy for a healthy 55 year old is in the mid-80s with a good chance of living well into your 90s such an approach would evidently pose a serious risk of draining your pot prematurely.

He pointed out that while we can't control inflation, those planning to increase their withdrawals to maintain their spending power should consider the impact on the sustainability of their plan. "Chancellor Jeremy Hunt at least reduced this cliff edge by increasing the MPAA from £4,000 to £10,000, but that is still a lot less than the £60,000 annual allowance. Furthermore, if you trigger the MPAA you will lose the ability to 'carry forward' unused pensions allowances from up to three previous tax years."

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