Traps and tricks of pension withdrawals


HM Revenue and Customs figures show that over £30 billion has been withdrawn from pensions since the Pensions Freedoms were introduced in 2015. There are pitfalls for people to be aware of when taking money from their pension, not least around the amount of tax they may have to pay.

A growing concern is that where people take their pensions as lump sums, everything over the tax free 25% HMRC taxes as income but also assumes they will be taking the same income amount, each month, on an ongoing basis and applies an emergency tax code. This can result in a very large tax deduction which needs to be reclaimed.

Another issue is that much of the £30 billion has been taken out without Independent Financial Advice. This could prove costly as the consequences of taking too much or doing things in the wrong order, go way beyond simply reducing an individual’s regular income when they need it most, in retirement when it is more difficult to supplement their income stream.

Where people take money out of a pension (this is termed crystallising the pension) it can trigger unintended consequences, including limiting the amount people can subsequently save into a pension. Currently, this reduces from £40,000 to £4,000 a year. This can be restrictive for those who plan to continue working and continue to pay into their pension, especially where they are also benefiting from employer contributions.

To take pension money out and reduce the tax bill, the timing of withdrawals is key – for example, spreading the withdrawals over more than one tax year to use more than one personal allowance.

For those withdrawing money from their pension to create an income stream, Independent Financial Advice can help in making sensible decisions about how much of their pension to withdraw and when. Taking too high a percentage can deplete the pension too quickly and leave them with a reduced income, or worse case that they run out of funds in their lifetime.

Accessing pensions in the right way and retirement planning are complex and require forward planning if people are not to be caught out. It is strongly recommended that anyone thinking

about accessing a pension under the Pension Freedoms rules, before their retirement date, seeks Independent Financial Advice.

When thinking about taking your pension benefits, whether you are retiring or not, there may be a number of different options available to you. Making the right choice will depend on your own personal circumstances.

To arrange a free financial planning consultation and discover how your finances could benefit from advice:

Call: 0191 2878714


The value of pensions and the income they produce can fall as well as rise. You may get back less than you invested.

Pattinson Wealth is a trading style of Lowes Financial Management, registered in England & Wales 1115681. Lowes is authorised and regulated by the Financial Conduct Authority. In return for introducing a client to Lowes Financial Management, Keith Pattinson Estate Agents Ltd will be paid a share of any initial fees paid to Lowes for services they provide.