The changes in UK pension law which came into effect in April 2015, have given pension holders a far greater say in how their pensions are managed. It has also left a lot of people seeking pension release advice.
- Is it for everybody
- Do I need to do anything with my pension
- What can I do with my pension
- Will I benefit from any changes
The new Rules only apply Private or Workplace Pensions
Firstly, for those seeking pension release advice, the new rules only apply to private and workplace pensions. State pensions and state retirement ages remain the same.
Although most providers have their own pension scheme rules, to be able to access your private or workplace retirement pot(s), you need to be 55 years or older to release pension funds. The only exception to this is if you are suffering from extremely poor health, and this definition will again depend on the provider’s pension scheme rules.
There are companies offering ways to get round this, using off-shore accounts and international banks. They send out spam mail or emails entitled something like ‘How to Unlock my Pension’ and painting a picture of retirement at 40/50. These are illegal, and if things go wrong could cost you your retirement pot, stay safe and keep away.
Releasing Pension Fund Cash Options at 55
Once you reach the age of 55, you have a number of options available.
- Leave your pension as is until you retire
- Draw 25% of your pension pot tax free
- Organise a flexible income for your retirement
- Take smaller amounts from your pot
- Close your account and draw your whole pension pot
When Would You leave your Pension as is
For many, paying their monthly contributions and leaving their pot to increase is all they want. Should finances be tight though, maybe shorter working hours or other debts, then the pot can be ‘capped.’ This releases the plan holder from further contributions, while the pot continues to accrue interest.
Draw 25% of your Pension Pot
Once you reach the age of 55 years, you can draw up to 25% of your pot as a tax-free lump sum, and convert the balance into a lifetime annuity. This will provide you with a regular taxable income for life. While you use the lump sum to pay off or reduce your mortgage, add an extension to your home, or have that holiday of a lifetime. Lifetime annuities differ from provider to provider, and an in depth guide to pension release should be sought from professional independent advisers.
Organise a Flexible Income
Organising a flexible income again allows a tax-free lump sum drawdown, but gives the option of you stating the retirement income you want, and re-investing the balance into various funds. With this type of scheme, a professional guide to pension release is of paramount importance as there is no guarantee of continuous lifetime income.
Using your Pension Pot as a Savings Account
Another option to release pension funds is drawing small amounts as and when needed. The first 25% of each withdrawal remains tax free, and the balance continuous to accumulate interest. However, much again depends on good pension release advice as the balance isn’t guaranteed to provide a regular income on retirement.
Take the Money and Run
The last option is releasing pension fund cash, draw all your pot, unless you’re in a very strong financial position, not necessarily the best of ideas. That said, making enquiries regarding how to unlock my pension is a good idea. Being able to release at least some funds can make retirement for many a much more attractive prospect. Mortgages can be paid off, debts reduced and funeral plans taken up to release pressure on family. If You would like to consider getting all the legalities out of the way first when you release your pension fund, ten companies such like the funeral plan comparisons
experts at Silver Choices can provide a whole plethora of advice on all things financial, and point you in the direction of a more secure, happier retirement.