What is pension release?

Pension release means taking money early from your pension. And as long as you have right type of scheme, you can take as much of your pension savings as you like from the age of 55. You could take the money as one-off payments or set up a regular withdrawal; for example, a set amount every month. Pension release means you can be very flexible with your savings. It also means you could end up taking too much money too soon, which is why many people get specialist help before making any final decisions.

How do I know if I have an eligible scheme, and what’s this talk about tax?

All private pensions are eligible, as are most employee schemes. If you have what is known as a final salary scheme with your employer then you may need to transfer this to a private pension before you can take any money. It’s wise to think very carefully before doing this as you could be giving up guaranteed benefits when you retire.

You cannot use pension release to take money early from the State Pension or unfunded public sector schemes which cover organisations and professions including the NHS, teachers, armed forces, civil servants, firefighters and the police.

Ok, but you haven’t mentioned the tax…

As you know, you can take the first 25% of your pension tax free; anything you take above this amount counts towards your annual income. This is why you need to take extra care if you are thinking about taking more than 25% of your pension, as this could push you into a higher income tax bracket. Tax treatment depends on your individual circumstances and may be subject to change.

What happens to the money left in my pension?

You have a number of options: from leaving your pension invested to grow for the time being, to starting to take an income from it.

Is pension release legal?

Absolutely. According to UK law, people aged 55 or over have been able to take up to 25% of their pension savings tax free since 2006. The pension freedoms introduced in April 2015 mean that you can now take as much money as you like from your pension.

Why are people doing this?

People are taking money early from their pension for all sorts of reasons. Some of the most common include:

  • Tackling a debt, such as a credit card, loan or paying off the mortgage.
  • Helping a family member with a big life event, such as a wedding or deposit.
  • Replacing the car and making renovations around the house.

Of course, you might have a completely different reason for wanting to take money early from your pension. Releasing pension money early isn’t right for everyone as it will leave you worse off in retirement.

Is it something I should do?

This is the big question and there are lots of things to consider before deciding if pension release is right for you. While taking money early from your pension could make a telling difference to your life right now, it could affect the amount of money you have further down the line. Is this something you can live with? The best way to answer this question is to talk with a regulated pension advice specialist.

Is the company regulated by the Financial Conduct Authority?

Your pension is too big a deal to take lightly, so the bare minimum you should be looking for is a company regulated by the official government body. It’s easy to check – simply search online for the Financial Conduct Authority register: our company number is 754580. If the company is not registered then it could be a scam.

How to spot a scam

Unfortunately there are different types of pension scams and they can all result in you losing a lot of money. Find out more about what to look for when researching financial advisers.

How much will it cost you to review your pension?

If you want to take money early from your pension then the best thing – and in some cases the only thing to do is seek regulated financial advice first. Generally the adviser will review your pension before giving their recommendation and the cost for this can vary wildly. Our initial investigation into your pension will not cost you a penny and any advice charges are confirmed in writing before you have to make a decision to proceed. This means you can walk away better informed with nothing to pay.

What are the options for your remaining pension?

If you ask an adviser to review your pension, with the aim of taking money from it early, then they should advise you on what to do with any remaining pension fund based on your needs and circumstances. You should steer clear of any company that is not willing or able to do this for you.

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Thinking about your pension options?

We can help you make the best possible decisions when it comes to your pensions. We are authorised and regulated by the Financial Conduct Authority.

The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.
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