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Ask the Expert: I've reached retirement age, do I have to take out a lump sum?

PUBLISHED: 06:00 01 June 2019 | UPDATED: 08:29 01 June 2019

Should you take a lump sum out of your retirement pot and invest it? Picture: Getty

Should you take a lump sum out of your retirement pot and invest it? Picture: Getty

Getty Images/iStockphoto

This week our reader wants to know whether they should extract money from their pension and invest it, or leave it where it is. Carl Lamb of Almary Green responds.

Carl Lamb, managing director of Almary GreenCarl Lamb, managing director of Almary Green

Reader question:

I'm age 63 and have worked all my life so have built up a decent pension pot - it's now worth about £250,000.

I've been told that I take a quarter of this as tax-free cash when I retire but frankly I don't really need a cash sum at that point - the house is paid for and I have other savings I might use to buy a car or go on holiday.

Can I leave it in my pension and use it for my income later or do I have to take it and then invest it somewhere?

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Almary Green response:

Since April 2015, pension savers can access their pension fund in a range of flexible ways so the short answer is no, you don't have to take your tax-free lump sum at the moment you retire.

Financial advice can be really helpful as you approach retirement to work out the best pension income route for you.

However, for many pension savers, the ideal solution to take is to go into what is known as flexible drawdown.

This involves accessing your pension fund to take withdrawals as and when you want them.

You don't have to use the pot to buy an income plan (an annuity) at any stage - unless you want to - but withdraw funds directly from the fund leaving the rest invested.

As you withdraw funds, 25 per cent of your withdrawals will be free of income tax with the rest taxed at the appropriate level of tax for your overall income.

This flexibility means that if you do want a larger sum at some stage, then you can take a larger withdrawal - but remember that it is considered income, once you've taken the 25 per cent tax-free, so bear in mind that you might tip yourself into a higher tax bracket with a large withdrawal.

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