People planning to take advantage of changes in legislation and cash in their pension pots risk landing themselves with large tax bills, experts at DSH Financial Services are warning.
Changes that came into effect on Monday (April 6) mean that anyone over the age of 55 can cash in Defined Contribution pensions savings, but doing so has important implications, according to Ian Holyoake of DSH’s Maidstone office.
He said: “There has been a lot of publicity surrounding the changes to pensions regulations, much of it concentrating on fears that people will cash in and spend their pensions, leaving them with little or nothing for later in life.
“However, there are serious tax implications to consider as well.”
Apart from a tax-free lump sum of 25 per cent, income tax is payable on the remaining amount, warned Ian.
“This becomes particularly concerning if you are still working or have any other source of taxable income,” he said. “If the pension cash pot and other income together exceed £42,385, then you will find yourself paying tax at the higher rate of 40 per cent.
“Many over 55s will be tempted to take advantage of the changes in pensions regulations, but clearly there are many and varied pros and cons to be considered and proper financial planning needs to be undertaken to ensure you understand fully all of the implications.
Anyone considering cashing in a pension and who would like professional advice can contact DSH Financial Services on 01622 213793 or by visiting www.dsh.co.uk.