Five reasons NOT to take your pension tax-free cash
Tax-free cash – sounds good, right? Sounds like something you should grab with both hands.
Weeelllll, maybe not!
- You have enough cash already – Remember that money is only good for three things: Spending, Investing so you can spend it in future and giving away. It is NOT good for just sitting on.
- You have an IHT problem – If your estate is large enough so that inheritance tax is going to be a problem, it doesn’t really make sense to make that problem worse by taking your tax-free cash OUT of your pension and IN to your estate.
- You need more income – It goes without saying then that you’re likely to be able to produce a larger income if you don’t take out the tax-free cash right at the start.
- You want to leave more to your beneficiaries – We talked about not making your IHT situation worse just now, but the flip side to that is making more of your money for your beneficiaries.
- You would benefit from some income being tax-free – If you choose to exercise the UFPLS option regularly, then a chunk of everything you take out from your pension could be 25% tax-free.
Resources
Video: Pension Death Benefits
Video: Drawdown vs UFPLS vs Annuity
