Answered by Neil Adams
No, transferring pension funds directly to an ISA is not permitted. However, a personal pension is usually a defined contribution pension and the pension freedoms do allow you to withdraw your pension at the age of 55. You’re free to invest this in an ISA if you wish.
However, think very carefully before you do this. Withdrawing a big lump sum from your pension could land you with an unexpected income tax bill.
Taking money out of your pension will leave you with less income in retirement, whereas if you leave the money invested in your pension it can still grow in a tax-efficient environment.
It’s also worth mentioning that there’s usually no inheritance tax due on an inherited pension, as a pension fund is usually classed as being outside your estate when HMRC values it on your death.
To assess your potential inheritance tax bill, Drewberry has built an Inheritance Tax Liability Calculator, available here →
Given the risks of withdrawing pension funds to invest in ISAs (e.g. the lack of tax-free investment growth and potentially sizeable income tax and inheritance tax bills), there are few circumstances where this is appropriate.
If you are considering doing this, it makes sense to seek professional financial advice first. Please contact us to see if we can help.
Frequently Asked Pensions Advice Questions
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