Money saving expert Martin Lewis offers pension advice to all ages. From those just starting out on a career path to later life planners considering how to make the most of their retirement income.
The information he provides includes helpful tips on how to make your money work harder for you and risks you may face along the way. The overall aim being to save money and boost your retirement income, which is where Martin Lewis’ pension drawdown advice could prove invaluable.
Who is Martin Lewis?
Martin Lewis is possibly one of the best known personalities on tv. Also known as the Money Saving Expert having created a website of the same name, Martin Lewis provides advice on how to save money.
From utility bills to bank accounts, the celebrity journalist and campaigner is the peoples champion when it comes to fighting for the rights of the consumer.
What is Martin Lewis’ pension drawdown advice?
Martin Lewis’ pension drawdown advice could help reduce the amount of tax you pay on your pension, in some cases by thousands of pounds.
Currently when it comes to accessing you pension, you can choose one of two options:
- Withdraw the money as and when you need it – the first 25% of each withdrawal is tax free, then you are taxed on the remaining 75%. So, if you take £20,000, £5,000 will be tax free but the remaining £15,000 will be taxed.
- Opt for a pension drawdown – with this option you can take the whole of your 25% tax free allowance if you choose, then put the remaining funds in income drawdown or a pension annuity .
You can read our own guide on how an annuity compares to drawdown here.
The risk is that if you choose to simply withdraw the money as and when you need it, you will always pay tax on three quarters of the money you withdraw. So, if you’re a basic tax payer, 75% of the money you take with be taxed, on top of the any money you have already earnt. This could push you into the higher tax bracket which would mean paying thousands of pounds more in tax.
However, if you choose the more tax efficient pension drawdown option, you can take advantage of the whole of your 25% tax free allowance upfront, leaving the remaining funds invested until your earnings drop and you have less tax to pay.
For example, if you are currently in or close to the high tax bracket, withdrawing money using the first option will increase the tax you pay, in some cases by thousands. However, if you choose the drawdown option and only withdraw the 25%, you won’t pay any more tax. Then, by waiting until you are a lower rate taxpayer to take the remaining taxed amount, you will pay less tax overall.
Try the free pension drawdown calculator
What else does Martin Lewis advise on pension drawdown?
In addition to his tips on how to be more tax efficient, Martin Lewis offers the following advice when it comes to withdrawing your pension:
How much pension does Martin Lewis think you should pay?
Martin Lewis advises that to work out how much pension you should pay, you need to take the age you start contributing to your pension, halve it, then put that percentage into your salary for the rest of your life.
So, if you are 30 years old, you should pay 15% of your salary into your pension.
Mr Lewis is quick to point out that this may not be affordable for some people, however the key message here is that the earlier and the more you can pay into your pension, the more comfortable your retirement will be.
For more information on pensions, read our guide to retirement planning or to find out how retirement income you could get, use our pension drawdown calculator.