Ask the Expert

Pausing Pension Contributions

“I’m 60 and self-employed. I am considering taking some money from my pension pot to increase my income for the first half of next year. I’m hoping that I will then be able to put money back into my pension in the second half of next year. Am I able to stop and start contributing into my pension?”

Carl responds:

Once you reach age 55, you are entitled to withdraw funds from your pension pot. You may be aware that you can take up to 25% of your pension savings as a tax-free lump sum. You may find that this amount is enough to cover your outgoings for the next six months. However, it is important to remember that the more cash you take from your pension pot now, the less you will have to provide an income later.

Another option to consider is uncrystallised funds pension lump sums (UFPLS). This option allows you to withdraw from your pension savings as and when you need it. 25% of each withdrawal will be free of tax.

It is worth noting that once you start to withdraw benefits from your pension pot over your tax-free cash entitlement, your Annual Allowance (the amount you can save into your pension per tax year) is drastically reduced. You will also find that your Annual Allowance reduces once you start taking UFPLS. Under normal circumstances, the Annual Allowance is currently £40,000, or 100% of your earnings (whichever is lower). Once you start taking flexible benefits, this is reduced to £4,000 per year – this is known as the Money Purchase Annual Allowance.

Before taking any action, it would be a good idea to speak to an Independent Financial Adviser so that you can work together to create a financial plan. Getting financial advice will enable you to evaluate all available options.

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.