It’s all gone to pot

Financial worries or just looking for better value for money? Consumer champion Fergus has the answers you’re after Pension changes are still causing confusion.. but the right path is there to find

QI WOULD be grateful if you could give me some advice on releasing funds from my annuity pension. In the 70s/80s I took out an annuity pension at my work. Five years ago I took 25 per cent of this, which was nearly £7000. I was hoping I could take the rest this year but, again, the Government have gone back on their promise. I also read that there is a loophole and it’s the company who are refusing to let me sell, not the Government. My pension pot is worth about £22,000. And as I don’t keep great health, I feel I would like my money now. James Agnew

AI’M assuming from your question that you have bought an annuity and are receiving an income, and it’s this income you would like to convert to a lump sum. If that’s not the case, drop me another email and let me know where you are. If you have a personal pension and haven’t yet bought an annuity then you can, from age 55, take up to 25 per cent of the value of your fund as a tax-free lump sum. With the balance, you can buy an annuity. Or you can take the money in the fund as a lump sum which will be taxed at your highest rate.

So if you have no other income and you took the remaining fund of around £22,000, you would be able to have the first £11,500 free of tax . You would pay 20 per cent tax on the rest.

If you have income of £45,000 and took another £22,000 out of your fund, you would pay tax at 40 per cent on it. That’s because this lump sum, added to your income, would take you into a higher tax bracket.

This is why you have to be really careful about when and how you access the money in your pension fund.

You need to remember that only the first 25 per cent is tax-free and you could potentially have to pay tax on the rest.

Instead of taking an income, or the rest