What is a Cash Pension?

Cash pension to some may simply refer to the actual cash that is held in a pension fund, indeed it is recommended that each pension fund contains at least some cash to mitigate risk and provide liquidity. Of course, if all the assets were cash then the performance of that pension may prove to be very low and possibly performing under inflation levels. A full cash pension in this sense wouldn’t be appropriate and it is therefore wise to broaden the horizons of its meaning.

The term “cash pension” may also be used to describe the process of pension release which is a way for individuals with suitable pension funds to literally cash pension in enabling them to release up to 25% of the pension fund as tax free cash lump sum. The residual fund must then be transferred to a new provider or be taken as annuity should the client wish.

Limits do apply however on what pensions allow you to cash pension in. You are for example not allowed to cash pension in your State Pension and many final salary schemes do not allow you to cash pension in if you are still an active member.

If you do however decide that want to cash pension in your pension funds then you should contact a suitable financial adviser to help you do so as they can perform the process for you and keep you informed along the way. It is recommended however by the industry regulator the FSA that pensions be usually be used solely for retirement and as such you should think carefully if cash pension funds in is what is right for you as it could harm your income in retirement should you do so.

How do you Cash Pension Funds in?

When you have found a suitable financial adviser to help you cash pension funds in then they will likely conduct a full know your client factfind and risk assessment as required by the FSA enabling them to determine your exact needs and whether to cash pension funds in is suitable for you and your circumstances.

Every adviser is different in which kind of funds they are willing accept for cash pension routines as some may have limits on the lowest fund amount they are willing to deal with, while others may refuse to deal with final salary schemes altogether. However, there are advisers out there that can help if your situation is right to cash pension funds in.

If your situation is suitable then the adviser will assist you in contacting your current pension scheme provider to see what your current pension is worth and if they are able to transfer it for you. It should be noted that you will need to transfer your pension plan when you cash pension funds in so you should consider carefully if you wish to proceed with the process or not.

When your pension scheme details have been received, the adviser may then assist in transferring your pension to a new provider or enable you to purchase an annuity if you choose once they have sent you a suitability report and you have agree to the process. You can then expect to receive your benefits from the cash pension in from the new provider.

You should note that each financial adviser is different and as such the cash pension process may differ between each of them and will nearly always be more complicated than the description above which is only meant to be just a summary of the pension release process.