In Focus: Retirement Income  

Tax-free cash: take it or leave it?

  • To understand why some people might take tax-free cash on retirement.
  • To be able to explain why it might be best to keep the funds invested.
  • To ascertain what option might be best for individual clients.
CPD
Approx.30min

However, on death after 75, any remaining pension fund will be taxed as the beneficiary’s income when drawn. 

There won’t be any possibility of a lifetime allowance charge as the fund incurs its final lifetime allowance test on the member’s 75th birthday, with any tax charge due paid then. 

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This effectively means that any tax-free cash that hasn’t been taken on death after age 75 is lost, as it will be taxed as income in the hands of their beneficiary. 

Unless your clients really have something specific to spend the money on, why not leave the money in the pension to allow it to keep growing in the long-term?

Inevitably, these decisions are entirely dependent on savers' personal circumstances and preferences.

To find out more about their options, people should consult a qualified financial adviser.

Tamlin Russell is technical product adviser at LV

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. According to the author, the 25 per cent tax-free cash is seen as what?

  2. Russell says unnecessarily taking money from a pension could increase what?

  3. According to Russell, what allows Trevor to meet his income requirement indefinitely?

  4. What can make any decision more complicated, according to the author?

  5. What are further factors to consider before deciding on taking the tax-free cash?

  6. Delaying designation of the fund for two years after the member’s death does what, according to Russell?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • To understand why some people might take tax-free cash on retirement.
  • To be able to explain why it might be best to keep the funds invested.
  • To ascertain what option might be best for individual clients.

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