My friend Johnny Timpson put a thumbs down to an article in the Guardian . Not something that I’d expect; like the snoop I am, I decided to take a look.
Here’s the article in the Guardian.
Here’s why I give the experts advising us not to withdraw our cash “tax-free” due to “fear and rumour” the thumbs down too.
- A DC pension pot is not a pension – it is a pot. And if you want to draw from the pot, are you prepared to risk to pay from 20% to 45% of the withdrawal to HMRC if the Government choose to lower the cap on tax free cash?
- The current pension minister, who is heading up the budget thinking in the Treasury is no fan of tax-free cash making the likelihood of (1) happening the greater.
- Assuming we’ve got nothing good to do with cash is nonsense, many of us have mortgages which are offset by money in our bank accounts, or can be paid off over the phone
- Not paying mortgage interest out of taxed earnings means a tax-free saving of the bank interest rate +++. Tax free growth and income from an ISA can come from the same funds as your ISA (if you are like most of us – in trackers). Not much difference in price either.
- Getting money out of a pension pot (especially Nest) can be a nightmare, we have until November 26th till the budget, which might be time enough to get some of these pot administrators to cough up a transfer of our pot.
- The reason why this sum is currently available from the age of 55 (57 from April 2028). You can usually take up to 25% of your pension as a tax-free lump sum, to a limit of £268,275. The reason it is so complicated is because Chancellors are always having a go at it.
Now we come to the absurdities of the article
“Older savers should avoid making rash decisions about their pension cash based on “fear and rumour”
Does the Chancellor flag she or he is about to stop a tax-break? Put another way, will we get a window to get our money out – after Nov 26? Of course we won’t. That’s not the way that these things work – we only have “fear and rumour” to go on.
They warn kneejerk decisions could wreak havoc on people’s long-term plans.
- I don’t consider a couple of months “knee jerk“.
- Having cash in a an ISA or a reduced mortgage is not “wreaking havoc” it is “reorganisation”
- The idea that people need to have money in a pension pot rather than an ISA is ludicrous, they are both pots of money to call on. The ISA is the one you don’t need to pay tax to draw money from.
“pots are meant to last decades, not be raided in panic”
What kind of simplistic stupid advice is this from an adviser? What makes any adviser think that people are going to be irresponsible with money they have in their control rather than in their’s?
Rachel Vahey at the investment platform AJ Bell said the concern is “people aren’t making decisions based on what’s best for them but because they are worried about possible changes to pensions tax incentives”.
What evidence has Rachel for this? Is there not an equal likelihood that people are not going to risk losing up to 45% of their withdrawal as a donation to the “save the Exchequer” fund?
Or is this “save the pension managers and advisers fund?”
In March, the Guardian reported that financial firms were reporting a “huge” increase in well-off older people taking sizeable sums out of their pensions to splash out on family holidays and give to their children
Oh dear! This sounds like intergenerational transfer in the right direction! It sounds like people putting money back into the economy , it sounds like the kind of thing you’d be doing if you were being sensible about debt, care costs and many other liabilities that older people do seem to have!
Thumbs down.
Johnny Timpson and I are old enough to be able to take our cash before HMRC does. I will take my cash if Nest will allow me near it. Right now they tell me there are two Henry Tappers working for AgeWage and it will take them 6 weeks to sort that out. I am not sure I will get the chance of a tax-free cash sum by Nov 26th but I’ll keep trying,
I appreciate that this is a very complicated business – this pension stuff and of course it’s not my money – it’s the trustees! So I’ll keep my fingers crossed.
