Pensions: Should you take your lump sum before the elections?

The pension rules changed, dramatically, in the Chancellors budget last year. You can now take your pension as and when you like.

The pension rules changed, dramatically, in the Chancellors budget last year. You can now take your pension as and when you like. The Labour opposition seem to be going along with the changes, but I just wonder. If Labour form the next government, they will definitely be looking for more tax revenue, I think they might look to raise more from pensions.

My belief is that they think that too many of the tax benefits derived from pensions go to the already affluent, after all, they are in the business of transferring resources from the affluent to the less well off.

They might like to restrict pension tax relief to 20% taxpayers. Of course this would pretty much kill off pensions held outside occupational schemes. It would also be very difficult to operate for final salary pension schemes. But you never know. I would therefore recommend making any substantial transfers into a scheme this side of the General Election.

I think a much more likely candidate for change is the tax free lump sum. At the moment you can get 25% of your pension as a tax free lump sum on retirement. I believe this is very generous. If you have the full £1,200,000 in your pension you can get £300,000 which is never taxed. I think it is likely to be changed to something like the lower of £50,000 and 25% of your fund. This would hit the better off without fundamentally changing the rules on pensions. I believe a Labour Chancellor might enact this within days of being elected. If you are looking to retire soon and enjoy your tax free lump sum my advice would be to take the money before the election.

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