Labour's plan to review pensions in order to save money has raised concerns about the potential impact on households and their pension pots, leading to media reports of a "pension raid." It is unclear what changes will be announced at the October Budget.
Impact of Potential Changes to Pension Withdrawal Rules
Labour is looking at possibly changing the rules for pension withdrawals. Right now, people can take out up to 25% of their pension savings without paying any tax. But there’s talk that this tax-free portion might be lowered to 20%, which would mean more of the money would get taxed, as reported by Birmingham Live.
Because of this possible change, some people are thinking about withdrawing their pension funds now while they can still get that 25% tax-free. They want to make the most of the current rules before any new ones might come into play and potentially leave them with less money after taxes.
Understanding Pension Withdrawals and Seeking Financial Advice
Citizens Advice highlights some important details about accessing pension funds and stresses the value of getting professional financial advice. It states: "You can take your whole pension pot as cash straight away if you want to, no matter what size it is. You can also take smaller sums as cash whenever you need to.
"25% of your total pension pot will be tax-free. You'll pay tax on the rest as if it were income.
"The earliest you can start getting a defined contribution pension is usually when you’re 55 - you should check this with your pension provider. You might be able to get your pension sooner if you’re retiring due to ill health.
"You should get financial advice before making decisions about your personal or workplace pension. You might have to pay for financial advice but it can save you money long term."