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Britons could 'take much more' than 25% tax free cash from their pensions - check how

Daily Express logo Daily Express 28/10/2021 Temie Laleye

Britons can take more tax-free lump sums from their personal pensions, rather than just the standard 25 percent, an expert has suggested. Financial planner Chris Bourne posted a YouTube video explaining to viewers how they can keep more of their money in retirement and how to maximise their tax-free cash.

In order to get more than the standard 25 percent tax free cash from someone's pension, they need to "take this money out in stages, rather than all at once."

He said: "Let's say you've reached 55 and you have £100,000 in your pension pot and you want to take £10,000 as a tax-free lump sum from your pension, you would need to crystallise £40,000.

"So, from that £40,000, you will get £10,000 as tax-free lump sum and the remaining £30,000 would be transferred to a Flexi access drawdown.

"The remaining £60,000 will then remain untouched in the uncrystallised pension pot."

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Tax free cash © GETTY Tax free cash A personal pension becomes a 'crystallised pension' as soon as someone cashes it in and starts taking their retirement benefits.

Pensions can be crystallised from the age of 55 and can be accessed via drawdown or an annuity.

Flexi-access drawdown is a way of taking money out of one's pension pot to live on in retirement.

It can give you more flexibility over how and when they receive your pension.

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Mr Bourne explained the importance of only taking cash out that is needed when withdrawing money from someone's pension.

By only taking what is needed, the money still in the pension will still be invested and be able to potentially grow and make more money.

Mr Bourne went onto discuss what would happen to the uncrystallised pension in the example he gave above.

He said: "Let's say you don't touch the uncrystallised pension for a few years and it's now worth £80,000. You then decide that you want to take the remaining tax-free lump sum in its entirety, so you crystallise the whole pot.

Tax free cash © GETTY Tax free cash

"25 percent of £80,000 is £20,000 so that's paid to you as a tax-free lump sum. The other £60,000 joins the money in your draw down pot which may have grown a bit too.

"In doing that you would have ended up with £30,000 of tax-free cash instead of just the £25,000 you would have got on day one.

"Based on the original pension value, you have now received 30 percent, instead of 25 percent and that's why it's sensible to only take the money out that you need initially.

"You don't want to miss out on tax free cash."

The main benefit of crystallising a pension is the tax-free sum available which is usually 25 percent.

The remaining 75 percent of one's pension is subject to income tax at the point of withdrawal of 20 percent for basic rate taxpayers, 40 percent for higher.

Once someone has crystallised their pension and taken their tax-free lump sum, they can choose between drawdown and purchasing an annuity.

Britons should also seek professional advice if they do not know what to do with their money.

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