tax free cash or not?

Most people tend to take tax-free cash from their pension plans at retirement. Frequently, this simply feels instinctively right, but it makes sense to try and rationalise this. We can start by considering why you might not want to take tax-free cash:

You have more than enough capital, and tax-free cash will only increase your eventual inheritance tax liability
Your income is limited, and a fixed and certain level of income is attractive
Your pension plan offers an attractive guaranteed annuity rate

Where you do take tax-free cash it is usually because:

Capital in your hands offers long term flexibility, particularly if your capital resources are otherwise limited
You avoid buying an annuity, usually fixed and with no flexibility
You avoid buying an annuity when rates are low

Some people may be better off for income by taking tax-free cash and buying a purchased life annuity (PLA). Without getting too bogged down in detail, the reason for this is because you pay less tax on a PLA, as part of it is assumed to be a return of capital, and therefore may receive higher net income from the PLA.

Others may prefer to take tax-free cash and buy ISAs online to accumulate a reserve to pay out income later in retirement. For example, a selection of good equity income funds should be able to generate a growing income through a long retirement.

Within our comprehensive service (options 2 or 3), we will take into account the wider opportunity to generate income from your investments during retirement.

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