I find it hard to justify my blog pushing back on this work

But I fear I’ll have to!

First the phrase “still in work” applies to many people who have “retired”. Not many people say they’ve stopped working and those who do (witness Damian Stancombe) find themselves back doing work pretty soon after jacking it in. We are more than aware of tax in retirement and desirous of some of our money tax-free at a premium.

PCLS (in the headline) , which is often known as ‘tax free cash’ or a ‘tax free lump sum’, is a tax free payment which most people can receive when they start accessing their pension benefits. It is normally 25% of the value of the pension benefits being accessed.

Here is a statement in the Government’s Library written 11 years ago.

The Government provides tax relief to support saving to produce an income in retirement. However, it also allows part or all of a pension to be taken as a lump sum in certain circumstances. Before April 2006, there were no fewer than eight different sets of tax rules in use for pensions, with different rules governing the circumstances in which lump sum payments could be made. However, the Finance Act 2004 introduced a single set of rules applying to saving in all kinds of pension schemes.

We have a got to a point when most of us know what 25% or a quarter is worth and it is a precious perk. Thank goodness it isn’t one of 8 formulations! We can take tax-free cash without advice without disadvantage and PCLS is the means that has captured the popular imagination.

It is possible to take a proportion of the money in your pot in stages . This is UFPLS  which stands for Uncrystallised Funds Pension Lump Sum, a flexible way to withdraw money from a defined contribution pension pot. You can take some or all of your pension as cash, where 25% of each withdrawal is typically tax-free, and the remaining 75% is taxed as income. The portion of the pension not taken as a lump sum remains invested, allowing for potential growth but also carries the risk of investment losses. 

You might ask why people do not keep their benefits “the uncrystallised pension lump sum.” If people are trying to maximise their post-tax payments from a pension pot they would. I had hoped I would as I am an income not a pot man.

But my view of income has had to change, not least because my mortgage is about to run and I will need to pay it off with capital. I had thought that this would be best achieved at the last possible time (to benefit from investment) but how can I bank on it still being around? I am totally perplexed why the tax rules are still linked to the Lifetime Allowance (LTA) when the LTA is otherwise irrelevant and I have read Minister Bell’s comments on the stupidity of pension taxation (and taxation breaks).

40% of people had no idea and 60% had a good idea what they’d do with tax-free money or simply weren’t interested in taking the money they were saving (people aren’t all spenders).

This wide disparity of what people want to do with their cash doesn’t disguise that the vast majority of people were aware that some tax free cash was coming their way.

What worried Steve Cameron of Aegon was that a very high proportion of people interviewed said that they’d had financial advice which seems to have been anything from general information to regulated financial advice.

9% of those interviewed by the FCA had had regulated financial advice. From Aegon’s sample respondents, this figure soared to 33 per cent across all wealth segments, reaching 70 per cent among the mass affluent to high net-worth (those stating they had more than £100,000 in investible assets).

What people interpreted as financial advice showed an ongoing confusion not just about what the Government was going to do with tax-free cash entitlements on November 2026 but what they were getting as advice on what to do. Since the days not so long ago when tax-free cash was calculated in 8 different ways.

But while Aegon are complaining that people are thinking of themselves as advised when they are not, Just are saying the opposite. Presumably they are asking the question differently.

This report is from Financial Planner. 

Unlike the Aegon one (above), the Just report worries that people don’t take advice before taking their cash.

Or maybe people have worked out that they can take a quarter of their pot with no danger of paying tax. Most people think it is a quarter of the pot and can understand it. They are getting “influenced” from all kinds of sources suggesting it will be less than a quarter and might be lost altogether and even if the only plan was to have a decent bank balance; the thought of losing tax free cash is enough to be safe not sorry. This is deemed as panic.

Most people think they are understand what financial advice is telling them- be safe and don’t risk losing the right to money tax-free. They don’t think of targeted support, they think of advice as what they hear, read and see on their phones. This may be panic to Aegon but it is prudence to savers and a very high proportion think they are getting advice.

There is a very simple way for the Government to put an end to the run on pension pots by people banking their TFC. That is to put it in the protected status that the triple lock has with the state pension.

So long as the Government doesn’t deny they’ll be messing with taxation,  then people will assume the worst. 40% of us will prefer to have money in the bank without a tax liability than at risk from the taxman in a pension. The 50% who have decided on a positive direction for their cash should be congratulated and the 10% who have decided to have their money as income are (I hope) using UFPLS to get part of the payment tax-free.

It is worrying pension professionals that we are worrying. We act  because we consider it advice to take our money tax-free while we can. We act on what we hear as advice and are accused of acting in panic.  This is the terrible mess we are in with our pensions!