Since the introduction of pension freedoms in 2015, you have been able to access your pension funds once you reach age 55.
However, while it may be tempting to withdraw a large part of your pension pot immediately, this could be a mistake and have consequences later in life.
In fact, there are many good reasons why it might make sense to leave your money invested.
Build up a larger sum
By leaving your money invested in the stock market, you maximise the chances for it to continue to grow and provide a better income for you in retirement.
History shows that stocks and shares provide better returns than cash over the longer term  and from age 55, you could easily have a further 20 years to save and see your money grow.
Even if you are worried that there could be a recession coming, Brewin Dolphin research has shown that the best years to be invested are often the years preceding a recession.
Avoid unnecessary tax
Most people will still be working through their 50s and much of their 60s and for some, even relatively small pension withdrawals could push you into a higher tax bracket.
Based on the income tax rates for 2019/20 tax year, you can earn up to £50,000 per annum before you start paying the higher rate of tax.
So, someone earning a salary of £46,000 a year would only be paying basic rate tax of 20%.
If they withdrew a further £10,000 of taxable income from their pension, only £4,000 of this sum would be taxed at 20%, and the remaining £6,000 would be taxed at the higher rate of 40%.
In other words, the added income from pension drawdown could mean you pay more tax on it than if you accessed it in a different way down the line.
Save enough for old age
You are likely to live longer than you think. Even at age 65, statistics[3 ] show that you are likely to live for another 20 years, so you may need more money than anticipated for long-term care.
It’s wise, therefore, to make sure you have enough money saved for a comfortable retirement.
Take an income while staying invested
Another option is to keep most of your money invested and withdraw a small amount each year to top up your earnings, or take an income directly from your pension fund whilst leaving it invested in the stock market.
This is known as income drawdown and you can read about it in more detail here.
 Source: E Dimson, PR Marsh and M Staunton, Global Investment Returns Database 2018 (distributed by Morningstar Inc).
The value of investments can fall and you may get back less than you invested.
Please note that this document was prepared as a general guide only and does not constitute tax or legal advice. While we believe it to be correct at the time of writing, Brewin Dolphin is not a tax adviser and tax law is subject to frequent change. Tax treatment depends on your individual circumstances; therefore you should not rely on this information without seeking professional advice from a qualified tax adviser.
Past performance is not a guide to future performance.
No investment is suitable in all cases and if you have any doubts as to an investment's suitability then you should contact us.
The information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.