Martin Lewis warns over‑55s of tax pitfalls when accessing pension funds

Martin Lewis, the financial‑media expert, cautioned people aged 55 and over that only the first 25 percent of a pension withdrawal is tax‑free. The remaining amount is subject to income tax and can push a taxpayer into a higher tax bracket.

He highlighted that pension providers may apply an emergency “Month 1” tax code on the first taxable withdrawal, which can temporarily charge tax as if the amount will be received each month, leading to a larger than necessary tax bill. Although excess tax can be reclaimed from HMRC, Lewis advises taking smaller sums or spreading withdrawals across the tax year.

Lewis also warned that withdrawing taxable pension funds may trigger the Money Purchase Annual Allowance (MPAA), reducing the annual tax‑relieved contribution limit from £60,000 to £10,000. He recommends seeking free guidance from Pension Wise or MoneyHelper, and for larger pots, obtaining independent financial advice to avoid costly mistakes.