When you retire you are giving a fixed sum of money that is paid on a regular basis and this is your pension. There are several different types of pensions that you may choose from when you set up a retirement pension plan. Pension plans can include defined benefit, defined contribution, and other pension plans that are paid to you once you have retired. The way pension plans work are that money is placed into the plan and the amount is often set by that particular employer as well as the employee. Usually the age in which someone can access this pension money is once they retire and around the ages of 60 to 65, however the age can be lower. However, in some instances you may need that pension money prior to your retirement and this is called a pension release.
Pension release is when money is taken out of your pension plan before you have retired. You never know when you may have to take funds out of your pension and you may not plan to until you retire but then find yourself in a financial crisis so using a personal pension to help withdraw money may be your best bet. There are many ways in which you can withdraw money out of your pension, some are legal and some are not and it is important to know what you can and cannot do as it can effect more than just how much money you receive. If aged 55 plus then you can legally take money out of your pension fund. However, under 55 and need or want to take money out of your pension then there are certain criteria that you have to meet in order to do so as well as many different laws and regulations to follow. Usually the only way that you can withdraw funds under the age of 55 is if you have poor health.
There are a lot of things to consider, maybe you are thinking about withdrawing money possibly via a pension before you have retired. Usually there are penalties that are applied to the money that you take out; this is often in the form of a percentage of money that is taken out as a fee. This means that if you unlock a pension and maybe you will be receiving less money than what is actually a pension and you will also be increasing your risk of having little money left once you do retire. If you are seriously considering pension release then there are plenty of things that you should consider and you should also make sure that you are following the proper rules so that you have done everything legally.
Pension release allows for you to takeout up to 25% of your total pension pot, however there are only some ways that you can legally withdraw the funds from your pension.
1). Pension pot must be more than £20,000: This means that if you have over £30,000 and are 55 or over then a pension release maybe an option, and can take 25% a pension pot out as a tax-free lump sum. With this option you can use the rest to buy an annuity or to provide an income directly from the fund. Another option is that you can take out the 25% as a lump sum and then leave the rest of the pension to be invested.
2). Pension pot is between £10,000 and £20,000: This option only works if you current age is at least 60 years old and have a pot of £30,000 or less. This allows for you to take the whole amount as a lump sum and the tax free maximum is still 25% of that amount but you do have to pay taxes on the other 75% that you took out. This option sounds good but it can also affect different state benefits that you may be receiving and can end up costing you when it comes to your taxes.
3). Pension pot is below £10,000 : Over 60 and have a smaller pension pot then there is a possibility you can cash in those pensions out in full, however you may use this option for some of your pensions in a lifetime. But it can be used any number of times for some occupational pension schemes that have been implemented by a employer.
Pension release is a big step and Over 55 but have not retired yet it is important to think about all of your options before you choose gain access to your pension. Things to think about are how much you would take out and what that would leave you with once you are ready for retirement, do you really need the extra cash now or can you wait? Also get advice from a professional financial counselor or from your financial institute as they can help ensure that you are making the best choices for when you reach your retirement.
Some companies are singling out pension savers and making claims that they can help cash in your pension. If you agree to this you could face a tax bill of more than half your pension savings.