Martin Lewis issues pension warning to workers born in these years
Workers born in these years have been warned over accessing their pension, as Martin Lewis says it could cost you tens of thousands of pounds.
Martin Lewis addresses state pension myth in January
Martin Lewis has issued a pension warning to workers born in these years - telling them they could lose £10,000 or more.
The money expert has this week turned his attention to private company pensions for workers on his latest Not The Martin Lewis podcast spinoff alongside pensions expert Charlotte Jackson.
Martin urged people born in 1969, or 1970, 1971, 1972 or 1973, in other words, close to the age of 55, to check his latest advice if they are thinking of taking money out of their pension pot.
That’s because there can be huge implications for tax - and of course you might not realise quite how long you actually need to make the money in your workplace pension last.
Martin Lewis said: “If you know anyone thinking of taking money out of their pension (or nearing age 55). This is a must listen as get it wrong and it can cost you £10,000s. Do spread word.”
Martin then told his listeners: “Don’t underestimate your longevity. Someone aged 65, on average a man will live another 20 years, a woman another 22 years.
“But you have a 10 percent chance as a man of living to 96, and a 10 percent chance as a woman of living to 98 and it’s worth factoring that in.
“Admittedly your health, whether you smoke and your current age all factor in.”
Martin continued, setting out that there are tax implications to when you remove money from your pension to spend that if you get wrong, could cost you tens of thousands of pounds.
He added: “You generally get 25 percent of the money in your pension tax free, and the rest is taxed.
“But what counts and when it’s taxed is when it gets complicated.”
Martin then advised his listeners to imagine their private pension pot (ie a pension saved up from work earnings - not the state pension) as like a giant swiss roll.
He added: “Most of the roll is sponge and you have your luxury jam bit in the middle. Well the sponge is the taxable part of your pension and the jam running through the middle, that’s your tax free amount.
“Now if you take your money out of your pension using it like a bank account, you get a slice of the swiss roll. And that swiss roll contains whatever amount you’ve taken from your pension, 25 percent of it is tax free, and 75 percent of it is taxed at your marginal rate, whatever income tax rate you’re paying.”
Martin continued: “But if you do what’s called a draw-down or annuity then you can just take the jam, you can take 25 percent of your pension totally tax free and you’re paid the rest via the draw down or annuity later when you take it.”
In that way, you could choose to take the rest of your pension later on, when you’ve stopped working or earning, and that would mean you pay less tax because you’re no longer in a higher tax bracket, or you have the full £12,570 personal allowance available to you.
