I went self-employed as a sole trader at the beginning of this year and have had to dip into my savings and investments in order to remain solvent over the past few months – I didn’t qualify for any Government support as I was newly self-employed and haven’t been able to work under lockdown.  I worked for many years in the private sector and built up a decent pension – worth about £350,000 at the last valuation in September.  I’m hoping to get my business back on track within about six months but am going to have a few cashflow problems before I start making profits again.  I am determined not to get into any kind of borrowing or credit at this stage in my life.  I have a couple of Cash ISAs and a Stocks and Shares ISA which I could cash in or I could draw some money from my pension – I’m age 61.  Which do you think would be best?

Carl responds

It’s impossible to give you a definitive answer about which would be the best way forward without looking at your entire financial circumstances – that’s what we, as independent financial advisers, always do before making any kind of recommendation.  However, there are some basics to bear in mind here…

Firstly, with markets (at the time of writing) still unsettled, this is not the ideal time to be accessing any kind of investment that is based on equities or risk assets – so in your case your Stocks & Shares ISA and your pension investments – as you would, effectively, be locking in losses.  It may, therefore, make sense to look at the possibility of using your Cash ISAs to meet your shortfall in the short term.  However, depending on your circumstances, this may not be the best solution for you – you may hold these as your emergency reserves for your home and family, for example.

You can indeed choose to access your pension savings as you are older than the minimum retirement age (currently age 55).   This will inevitably have an impact on your retirement planning, so it’s important to understand what difference this would make.  An independent financial adviser can use cashflow planning tools to demonstrate what effect taking money from your pension now will have on your longer-term goals and aspirations.

You may look to take money out of your pension now and put it back in when you start making profits again.  This is indeed possible:  in most cases you can take up to 25 per cent of your fund free of tax as a pension commencement lump sum.  However, once you start taking flexible withdrawals from the fund under a drawdown contract, then the amount that you are allowed to pay into your pension each year – your Annual Allowance – drops to just £4,000.  This would clearly limit your ability to rebuild your retirement pot.

I cannot stress enough that planning is crucial in circumstances like yours.  Please talk your options through with an adviser before taking action.

Any opinions expressed in this article do not constitute advice.  The value of an investment and the income from it could go down as well as up.  The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.