Tax free lump sum or not

dont_use_vistaprint

I’m trying to work out whether it’s beneficial take a tax free lump sum next year at 55, pay off a small mortgage,  buy a new vehicle , versus doing the same, but using non-ISA savings currently with momentum, keeping options on my pensions. 

I didn’t  plan on paying any tax going forward with a combination of personal and savings allowance, I would keep pension income below 17,500, which is more than enough if mortgage free & have savings if needed, But it looks like now I will have an income of around 4000 a year , which will mean paying interest on non ISA savings.

Is it better to spend the savings now or take a tax free lump sum 

Mark_d

I would spend the savings now and keep the pension invested.  The idea being to keep as much  money in the pension as that's where you'll get the growth to last you for the rest of your life.  I understand that if you don't take the 25% tax free cash now, you get 25% tax free each year you crystallize  and withdraw  money from your pension fund.

bjorn_toby_wilde

The downside of taking the tax free lump sum from your pension is that the 75% that remains in the pension is then “crystallised” so it becomes taxable at the point you take it out.

For example: if you take £1000 from the pension as a TFLS then £3000 of that pension is now crystallised. You will pay tax at your marginal rate on it when you draw it out. If it grows to say £5000 by the time you draw it then you’ll pay tax on all of that £5000.

If you’re already paying tax on your savings then it makes more sense to use savings first before touching the pension.