Can I use my pension to build a veranda on my house?

Published:
11:15 a.m. August 12, 2022



I am due to retire next year and would like to use part of my £320,000 pension to build a conservatory on my house. I think I can withdraw some money from my fund. Is it a good idea?


Jeremy Woodruff, Principal and Certified Financial Planner at Smith & Pinching
– Credit: Smith & Pinching

Smith & Pinching’s Jeremy Woodruff responds:

I’m assuming you have a defined contribution (DC) pension plan where it was set up with contributions from you and possibly your employer, with added tax relief and – hopefully – investment growth at the over the years. The type of alternative pension plan is a defined benefit (DB) plan at your workplace where benefits are accrued based on your salary and seniority. The rules for a pension capital may vary for defined benefit plans.

A DC plan will normally allow up to 25% of its value to be withdrawn as a tax-free lump sum. It’s possible to take it in stages, but it’s important to plan carefully if you want to do this, as the tax rules are quite complex and the tax payable depends on how you will receive your retirement income.

The thing you need to remember with tax-free lump sums is that taking them early in your retirement will reduce the overall amount you have left to provide income throughout your life. It is essential to ensure that you have left yourself enough to live on.

Planning is especially important as you approach retirement. I strongly recommend that you take independent advice at this stage so you can understand what your options are. There are fundamental decisions to be made about how to use your pension fund to generate income from the avenues available to you. You can only make these decisions if you have fully considered factors such as your income needs at different stages of your retirement.

Financial planners can use lifetime cash flow planning to project themselves over time. This can show how your income might be affected by factors such as investment growth/loss, taxes, inflation, other lump sum withdrawals, etc. This will give you an idea of ​​how sustainable your income is under a range of different scenarios.

The opinions expressed in this article do not constitute advice. An annuity is generally not accessible before age 55. The value of an investment and the income from it can go down as well as up. The ultimate return is not guaranteed and you may get back less than you invested. Retirement income may be affected by interest rates, and the tax implications will depend on your personal circumstances and tax laws and regulations that may change.

For more information visit www.smith-pinching.co.uk

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