Five things to know before accessing pension freedoms

During the first bear market since they were introduced

Taking taxable income flexibly from your pension will trigger an irreversible £36,000 cut ($44,474, €40,927) in your annual allowance.

Selby said: “Anyone considering taking taxable income from their retirement pot for the first time needs to be aware of the severe impact it will have on their ability to save tax efficiently in a pension in the future.

“Taking even £1 of taxable income will trigger the money purchase annual allowance (MPAA), reducing the amount most people can save in a pension each year from £40,000 to just £4,000.

“Furthermore, if you trigger the MPAA you will lose the ability to ‘carry forward’ unused pensions allowances from up to three previous tax years, meaning in some cases the impact will be a £156,000 reduction in the potential annual allowance in the current tax year, from £160,000 to £4,000.

“It is inevitable the covid-19 crisis will push more people to access their pension from age 55 in order to make ends meet.

“To avoid an annual allowance cut, savers who have the option should consider using money held in vehicles such as Isas or cash savings accounts first.

“For those who only have their pension, just taking your 25% tax-free cash will also allow you to retain the £40,000 annual allowance.”

Tags: AJ Bell | Covid-19 | Pension Freedoms | Tom Selby