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Martin Lewis Reveals the Simple Pension Mistake that Could Trigger an HMRC Bill
Lewis said taking pension cash at the wrong time can push savers into a higher income tax band and cost them tens of thousands of pounds.
- Money Saving Expert Martin Lewis warned on his BBC podcast that accessing pension funds incorrectly can trigger higher Income Tax bills, noting that many people misunderstand how the 25% tax-free lump sum actually works.
- Simply withdrawing money from a pension does not mean every pound is tax-free; each withdrawal typically comprises 25% tax-free cash and 75% taxable income, dispelling the misconception that one can withdraw only the tax-free portion.
- Using a "Swiss roll" analogy, Lewis described the taxable part as the sponge and the tax-free element as the jam; higher-rate taxpayers could face 40% tax on the taxable portion, whereas delaying withdrawals might be more tax-efficient.
- Most people can currently access their defined contribution pension from age 55, although the minimum pension age is scheduled to rise to 57 from April 2028.
- Lewis urged those considering pension withdrawals to consult the Government-backed Pension Wise service first, warning that making the wrong decision could cost "tens of thousands of pounds.
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Basingstoke Gazette+10 Reposted by 10 other sources
Martin Lewis reveals the simple pension mistake that could trigger an HMRC bill
Martin Lewis explains the difference between pension withdrawals, drawdown and annuities, and why taking money at the wrong time could increase your…
·Basingstoke, United Kingdom
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Coverage Details
Total News Sources14
Leaning Left2Leaning Right2Center10Last UpdatedBias Distribution72% Center
Bias Distribution
- 72% of the sources are Center
72% Center
14%
C 72%
14%
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