Get 25% tax free cash now & the rest next year

When a subject line like this arrives in your email inbox, all you can do is sigh.

I won’t mention the name of the company sending the email; they claim to be authorised and regulated by the Financial Conduct Authority (FCA), which is disappointing given the tone of the financial promotion.

We are more used to seeing this sort of dodgy email from marketing companies who then flog your details to less than scrupulous financial advisers.

In addition to offering 25% tax-free cash now and the rest of the pension fund next year from personal pensions, they go on to suggest those with public and private sector final salary pensions must act now to get 100% of their cash.

Leaving aside that withdrawing every penny from your pension fund is unlikely to be the right option for the vast majority of people, there is no mention whatsoever of the tax position.

After 25% tax-free cash is taken now, when the balance of the pension fund is taken next year (the rules providing this access change on 6th April 2015) this withdrawal will be subject to income tax.

Depending on the amount of pension fund withdrawn and your other income, this could result in a substantial income tax charge of 40% or 45%.

The email also leaves out any mention of what is being given up by withdrawing the entire value of a pension fund.

This is particularly important if you ever consider transferring a defined benefit (final salary) pension scheme, from the public or private sector, to a personal pension in order to withdraw its entire value.

If you are contacted by an adviser or marketing firm touting the prospect of accessing the entire value of your pension fund, proceed with caution.

Seek proper, independent financial advice first before taking any action. Make sure you understand all of the risks involved and, most importantly, the benefits you are given up, as well as the tax consequences.

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