Quilter is urging pensioners with cashflow issues because of the current coronavirus lockdown to think carefully about how they withdraw money from their pension.
Pension freedoms give those aged 55 and over the flexibility to access their retirement pots when they need it, but short-term withdrawals need to be considered carefully as triggering the Money Purchase Annual Allowance (MPAA) will severely limit the contribution you can make in the future.
The MPAA restricts subsequent pension contributions after withdrawal to just £4,000 ($4,968, €4,591) a year.
However, the firm said that, if you take money out of a small pension pot worth under £10,000, “you do not trigger the MPAA”.
Seek advice
Ian Browne, retirement expert at Quilter, said: “The MPAA is an absurd tax which jars terribly with pension freedoms.
“One would think that the current environment is exactly the right time to make use of the flexibility that freedoms has introduced.
“However, thanks to this quirk within the tax system, they need to be careful how they tap into the money that is rightly theirs.
“There are ways to access your pension without triggering the MPAA, such as small pots. However, it is not for everyone and in fact tapping into your pension may not be the best choice, so it is vital to seek professional financial advice.”
