Should I Take My Tax-Free Cash Now or Leave My Pension to Grow?

Hi,

I am a 58-year-old full-time employed male with a workplace pension.

I also have a personal pension which matured when I was 55, which I’ve now extended until I reach 60. I would like to retire as soon as I can after 60, and my wife will continue to work full-time.

I will most likely need to take some money from my pension pot to pay off our Mortgage, also. My question is, should I take the tax-free amount from my pension and add £20k per year to a stocks and shares ISA, or leave it in the pension to grow?

Accessing tax-free cash is a common query and as with most financial planning questions, the right course of action really depends on your personal position. I would always suggest that you seek advice bespoke to your circumstances before making any final decisions, but I have covered some of the relevant aspects for you.

The underlying investments in both ISA and pensions grow free of Capital Gains Tax and Income Tax, so, assuming it was invested in the same way as it is within the pension, there is not likely to be a benefit to you in withdrawing the TFC and feeding this into an investment ISA in terms of growth alone. You would likely incur costs to make an investment into an ISA (if advised), and as you can only feed £20,000 per tax year into an ISA, you would have a period of time where the balance was not invested at all.

If the pension continues to grow in the way you have seen so far, your tax-free cash entitlement will also grow, which could be more beneficial to you in reducing your mortgage. It would be worth you checking on the investment selection within the personal pension to ensure that this continues to be suitable for your current needs and for your intended timeframe for access.

It’s important to note that whilst you have extended your retirement age on your personal pension to age 60, there should be no restriction on you accessing it at any point from now. You should also be able to access your workplace pension as you are past the minimum pension age.

Your ability to retire is presumably based on affordability, and I would encourage you, as a household, to consider your income needs. This could be broken down to your fixed costs (removing any payments for your mortgage if this is cleared), your discretionary monthly spending, and then any larger ad hoc spending. This could be holidays, home improvements, etc.

If your wife continues to work for the time being, her income can be deducted from your income needs, and the remainder drawn from your pensions. If you draw flexibly, when your wife retires, and your state pensions commence, you can adjust your drawdown to meet your changing needs.

I hope this is helpful and, again, I would encourage you to take full, personalised financial advice before taking any action, as decisions about pension access are often irreversible.