You can usually start accessing your pension savings from age 55, when you have the option to take all or some of them. Normally, the first 25% of your pension savings that you take is tax free and the remaining 75% is treated as taxable income.

You should consider whether this is the best time to take money from your pension savings as you may have recently seen the value of your investments fall. If you’re able to delay taking money out, you’re giving your pension savings a greater chance to recover, which could mean you have a higher amount when you do choose to access them. Taking money from your pension savings now may also mean that you might not have enough to provide the income you need in later life.

If you do need to take money from your pension savings now, then taking it out over several years could reduce how much you pay in tax.

For example:

If your pension savings are worth £40,000, and you took them all at once, you’d get £10,000 (25%) tax free, and the remaining £30,000 would be subject to income tax. If you’re still working and your salary is, say, £25,000 a year, you’d pay income tax on £55,000 (£25,000 salary plus £30,000 pension savings). This would push you into the higher rate income tax bracket. But if you take out money over several tax years, you could avoid paying income tax at the higher rate.

Also, as soon as you take more than your tax-free amount, you’ll usually trigger a permanent reduction in how much you’re allowed to pay into your Standard Life – and any other – pension to just £4,000 a year (typically, you can pay up to £40,000 a year into a pension). So bear in mind that this will restrict how much you can save into your pension in the future. (The only exception to this is if the value of your pension savings is £10,000 or less.)

Lastly, please be aware that taking money out of your pension could also reduce or stop any means-tested benefits that you’re receiving, so be sure to consider this before making any decisions. You can find out more about the different ways you can take money from your pension here. Alternatively, you can use our retirement calculator to explore your options and see how much tax you might pay.

Before making any decisions about your pension savings or other investments, you can get free guidance from the government’s PensionWise service or you may want to consider speaking to a financial adviser. You can find one yourself at unbiased or you can also get financial advice from Standard Life. A financial adviser can work with you to build a tailored plan that’s tax efficient and resilient to ongoing market changes.

There’s likely to be a cost for getting advice.

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