Pension savings - things to think about

As you have an Income Release pension, your income is not guaranteed, and your pension savings can fluctuate based on how they are invested and how much you withdraw.

If you take out too much too early, live longer than expected or your investments don't perform as well as you'd like them to, there is a risk that your money may run out.

The effect of inflation means that the cost of goods and services increases over time. This means the amount you can buy in the future with the withdrawal goes down.

For example if inflation is running at 5% and you withdraw £100, something that costs £100 today will cost £105 in a years' time.

Your payment will be taxed at source using the current tax code that HMRC has provided us with.

If we haven't made a taxable income payment to you previously, it will be taxed under the emergency code (1257L/ month1) as set out by HMRC.

The amount will be added to any other income you receive, such as salary or any income from other pensions or investments, which means that you could pay tax at a higher rate than you would normally pay.

If more tax is deducted than should have been, we recommend you speak to financial adviser or HMRC in order to find out how to claim a rebate. You can also visit the HMRC website and complete the relevant online form.

If you’re planning to re-invest the money you take from your pension, you should be clear on whether you'll be charged for doing so. You should look at any charges closely and see how they compare with what you'd be paying to keep your money where it is.

It's also a good idea to weigh up the potential returns you could get on your new investment against the risks you'd need to take to achieve them.

Remember, the value of investments can fall as well as rise - meaning you could get back less than you started with.

The amount of income you take from your savings could affect your entitlement to means-tested state benefits.

This means if your income or any money you have in the bank rises above a certain level, it could affect your eligibility for certain benefits.

We suggest you contact the agency that provides the benefits to check any implications if you are unsure.

You can refer to https://www.gov.uk/benefits-calculators to find out more (opens in new window).

When you're able to access your pension savings, there will be criminals who are eager to get their hands on your money.

You may have heard of people losing their pension savings, having first been contacted by a cold call scammer. A cold call is when someone you have not previously agreed to accept calls from phones you to talk about transferring or taking your pension savings. Unsolicited calls from people or companies promoting pension transfers or cashing in your plan are illegal. You could lose your pensions savings if you transfer or take your benefits after being contacted by these cold callers.

So if you're planning to take cash out of your pension to give to someone or to invest somewhere else, you need to tread carefully. You could lose everything if things turn out to be fraudulent.

These scams are getting more convincing and we strongly recommend that you refer to the Financial Conduct Authority's SCAMSMART website or talk to an impartial expert at the Money and Pensions Service (MaPS).

- ScamSmart: www.fca.org.uk/scamsmart (opens in new window)
- MaPS helpline: 0800 011 3797

If you were to be in debt either now or in the future and your funds remain within your pension there is some protection.

Once a payment has been withdrawn creditors may be able to make a claim against this in the same way as any other assets that you may hold.

If this applies to you, you may wish to seek independent financial advice, or contact the following to discuss further:

- National Debtline - 0808 808 4000
- Payplan - 0800 316 1833
- Stepchange Debt Charity - 0800 138 1111

From the point of payment you have a 30 day cancellation period.

Once this period has expired you won't normally be able to change your mind and might not be able to return any funds to us.