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Cashing in pensions could lead to tax mistakes

Over 55s financial specialist Key Retirement Solutions has asserted that pension savers need to lock in gains delivered by the reforms announced in the Budget, but that advice is essential to avoid mistakes being made.

The changes announced by Chancellor George Osborne offer greater flexibility and control over retirement funding, with new rules from 27 March allowing individuals to cash in single pension pots worth up to £10,000 and to take cash totalling £30,000.

Key Retirement Solutions has warned, however, that only the first 25% is tax-free, and people who simply cash in could end up facing a hefty tax bill.

In addition, it may be wiser for many people to simply save the money (or stick with buying an annuity) to get long term retirement income instead of the quick hit of a lump sum.

Paul Wilson, managing director at Key Retirement Solutions, stated that the retirement saving market had been calling for reform for years, adding that the Chancellor had delivered in spectacular style.

Wilson went on to say that the Budget announcements regarding small pension pots were particularly welcome.

He said it was vital that the reforms were a success, and that Key Retirement Solutions was pleased to hear that the Government was to guarantee guidance for every retiree.

Wilson went on to describe how some people will benefit from cashing in their small pension pots, whereas others would prefer to enjoy the security of income that comes from standard, enhanced or fixed term annuities, with drawdown and equity release a better option for others.

If individuals do opt for an annuity it is advisable to shop around as, according to the Treasury committee, those who do gain 40% on average (above their original quote).

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