Beware pitfalls of withdrawing pension cash

PENSION savers are being warned against the danger of withdrawing money from their retirement pot without proper planning, as they could end up with an unexpected tax bill or lose means-tested state benefits as a result.

- Harvey Jones

Savers can now access their pensions from age 55, and new research from insurer Legal & General shows one in five take out cash as soon as they can.

While this can be a valuable way of paying down debt or boosting spending power, it also comes with risks.

Taking money from a pension is a complex decision, yet more than one in four fail to take financial advice before doing so.

Alarmingly, a quarter who have withdrawn a lump sum admitted they were unaware doing so could affect their eligibility for benefits. Of these, more than one in 10 lost state benefit entitlements as a result.

While a third took some of their pension to cover essential costs, almost half withdrew cash simply "because they could".