Tax, investments and pension rules can change over time so the information below may not be current. This article was correct at the time of publishing.

Top mistakes employees make when taking income from their pension

Many people do not understand pension drawdown but use it to take money from their pension without taking financial advice. Many retirees are unaware of the tax implications of taking cash from their pension.

Many employers are seeing the benefit of putting processes in place to support employees who are almost at retirement. This includes offering financial education seminars and the change to speak to a financial adviser about their individual circumstances.

At Four Wealth Management, we offer a complimentary workplace financial education programme.

Below are some common mistakes that retirees make, highlighting which areas that employees may need support with.

Not comparing options

Many individuals go into income drawdown without speaking to a financial adviser and accept the scheme offered by their existing pension provider. By doing this and not shopping around for the best deal, employees could potentially receive less money from their pension each month. This is because the scheme charges could be higher than alternatives or the investment choices may not be suitable for their needs.

Which? Found that the difference between the cheapest and most expensive drawdown plans was £12,300 lost in charges over a 20 year period*.

Withdrawing pension assets and leaving it in the bank

Some people withdraw assets from their pension as soon as they are able to access them and then leave them as cash in their bank account. Bank account interest rates are at historic lows which means returns on any cash will be minimal.

Withdrawing assets will also mean that the individual will lose out on valuable tax benefits in a pension and they may pay more tax than necessary on the assets. By keeping assets in a pension until they are needed, they will retain their tax advantaged status as well as benefiting from Inheritance Tax rules because pension funds are not part of your estate for tax purposes.

Not taking income from other sources

Some individuals might be better off using alternative assets to generate income at retirement before beginning to make pension withdrawals. Individuals should consider utilising savings that are not growing tax-free and are liable for income and inheritance tax first.

A financial adviser can work with you to look at all of your assets and recommend the most tax-efficient way for you to take an income.

Book a no-obligation meeting with a financial adviser

Taking pension income before you need it

Some individuals chose to start receiving pension income as soon as they are old enough to access the money. However, they may still be working when they are taking the income and therefore not actually need it yet.

Our workplace financial education seminars can educate employees on the tax implications of taking money from their pension. Most employees do not realise that usually the first 25% of a pension can be taken tax-free and the remaining fund is taxed at their marginal rate.

The marginal rate is all of the employee’s income added together, so if they are receiving a full time wage as well as taking a pension income they might be classed as a higher-rate tax payer. Unless employees urgently need the money, they could stagger the withdrawals to avoid paying higher tax rates than necessary.

Get appropriate advice

If you are an employer and want to help your employees avoid these mistakes when accessing money in their pension pots, contact us on 0117 973 0500 to book a complimentary workplace financial education seminar. Given the current circumstances we can offer interactive sessions on Zoom.

Alternatively, we offer employees advice tailored to their individual circumstances. Call us on 0117 973 0500 to book a no-obligation pension review.


*Which, 2020, ‘Compare pension drawdown plans and charges’

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.
An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society.

The levels and bases of taxation and reliefs from taxation can change at any time. The value of any tax relief depends on individual circumstances.

Enquire Now

If you have any queries or would like to arrange a face to face meeting with an adviser for a no obligation review of your personal finances, simply book a call back using the form below. Alternatively, you can call us on 0117 973 0500.

The Partner together with St. James's Place Wealth Management plc are the data controllers of any personal data you provide to us. For further information on our uses of your personal data, please see the Partner's Privacy Policy or the St. James's Place Privacy Policy.

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Top mistakes employees make when taking income from their pension
FourWealth Management