At the end of March, chancellor Jeremy Hunt confirmed the Conservative party would stick with the state pension ‘triple lock’ in its election manifesto, and Labour is likely to follow suit. This is undoubtedly good news for pensioners as the state pension will keep its real value no matter the economic conditions.
But the move draws further attention to the issue of tax efficiency in retirement, as the state pension keeps rising and takes up an ever larger portion of the tax-free personal allowance. A key way pensioners can minimise income tax is by using their pension 25 per cent tax-free lump sum. However, as this is accessible from 55 (rising to 57 in 2028), many savers have already exhausted it by the time they reach state pension age.
A common misconception here is that you must take the sum all in one go and you should take it while you can as the benefit might be scrapped. The latter is always a theoretical possibility – but it is hard to imagine a policy change of this magnitude happening without advanced warning and protection for those who were entitled but had not yet taken it.