By Alanah Khosla for Mailonline
4:46 PM June 18, 2024, updated 4:49 PM June 18, 2024
Martin Lewis has warned against withdrawing money from a pension fund, claiming it is ‘one of the biggest mistakes you can make if you get it wrong’.
The British money-saving expert, 52, from Manchester, discussed the topic on today’s episode of This Morning.
A pension is a tax-favorable savings pot for retirement into which employees and their employer can deposit money.
‘Taking money out of your pension is one of the biggest mistakes you can make if you get it wrong; it could cost you tens and thousands of pounds that you won’t get back,” Martin warned.
During the show, Martin used a jam Swiss roll analogy to explain why withdrawing money from pensions can be problematic.
In 2015, pension freedom ensured that everyone from the age of 55 could withdraw money from their pension.
“Since they introduced the so-called pension freedom, you can get your pension like a bank account,” Martin said.
Although it is unlikely that if someone wants to withdraw the entire amount of savings at once, the first 25 percent will be tax-free and the remaining 75 percent will be taxed as income.
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However, using his jam Swiss roll analogy, Martin explained why this may not be the wisest route.
“The jam in my Swiss roll, that’s the tax-free amount, and the sponge is the taxable amount on the savings,” Martin explained.
He continued, “As long as you delete it [the jam] What happens when you take a piece of Swiss roll out of the bank account, you can’t just take the 25 percent [the jam]’ but you also get some sponge.
Because you take a piece of the Swiss roll with jam and biscuit, “25 percent of it is tax-free, and the rest is taxable,” Martin said.
He continued: ‘So if you withdraw £10,000, £2,5000 is tax free and £7,500 is taxable.’
Martin explained that there are three alternatives. First, you can take 25 percent tax-free and buy an annuity, which will give you a guaranteed income for the rest of your life.
Or you can take 25 percent tax-free and then deduct the remaining balance. “A withdrawal is just another form of investing,” Martin said.
He added, “That way you can withdraw 25 percent tax-free and leave the rest in your withdrawal or in your annuity for later.”
Martin further explained why this is a better option. ‘Suppose you’re still working when you take [cash out] and you are twenty percent taxpayer.
‘If you withdraw £10,000, £7,500 will be taxed at 20 per cent. Alternatively, you can take the 25 percent tax-free and invest the rest until you stop working and are no longer a taxpayer.
‘Then you are in a lower bracket and you take the amount, [but] even if it is taxable, you are not a taxpayer, [so] it’s tax-free for you.’
It comes after Martin Lewis revealed how holidaymakers can get the cheapest Easyjet flights for 2025 – but they need to be on their toes.
The founder of Money Saving Expert told his 2.9 million Twitter followers that the airline has launched its ticket sales from March to June 2025 – and that to have the best chance of bagging a bargain, it’s best to act quickly.
He wrote: ‘I just heard that Easyjet is launching its flights tomorrow from March to June 2025 [Tuesday] from 6am.
“Putting them in a bag as soon as they start up (browser refresh type) is often (no guarantee) the way to get them at the cheapest price possible.
‘Flights can increase by £100 even after a few hours on launch morning. So if you’re going to book, try early.’
He added: ‘PS – cheapest possible doesn’t necessarily mean cheap, just check what a decent rate is before you book.’
Easyjet says tickets can now be booked for departures until June 15, 2025.
The airline advertises 108 destinations from London Gatwick, with deals including flights to Ibiza from £20.99, Amsterdam from £23.99 and Lanzarote from £35.99.
As a general rule, as the date of a flight approaches and more seats are sold, prices increase.
Cheapair.com revealed that fares change an average of 49 times and change by an average of £34 each time.
The California-based company is urging waiting passengers to book flights departing mid-week.
The site stated: ‘Midweek flights (Tuesday and Wednesday) almost always offer the best price. Traveling during the week should always be a consideration for the budget shopper.”
It added: ‘Flying on Wednesday will save you almost $100 (£80) compared to Sunday – the most expensive day to fly.’
Does clearing browser history make any difference? Cheapair.com is unequivocal and states that the theory that clearing browsing history will magically show the lowest flight prices is a myth.
The site said: ‘Airlines don’t track your searches so they can raise prices the next time you visit.’