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Live and let live
Was it such a bad idea giving retirees the key to the vault on their pensions? Steve Webb argues that most have not rushed out to buy Lamborghinis just yet.
One solid reason why a spending binge does not make good sense is that withdrawals from your pension pot are taxable in the year in which you take them. If you spread your withdrawals evenly throughout retirement you may pay little or no tax because of the annual £11,000 tax-free personal allowance. But if you take out a huge lump sum in a single year you could easily find yourself paying tax at the 40% rate on a chunk of your savings.
Provided that people understand the implications, the tax system acts as a brake on the Lamborghini impulse.