Cashing in Pension

Pensions are a tax efficient saving vehicle recommended by the Government for individuals in the UK to have to help them save for and provide an adequate income upon retirement. The Government feel that too many people rely on their State Pension to provide them with suitable income when they retire, but this is usually not enough for pensioners to live on and they find themselves with an income shortfall.

Pensions are not however always seen as the best saving vehicle for retirement by some people as cashing in pension funds early can be a difficult thing to do. Indeed usually you will have to wait till at least the age of 55 before you can take any benefits at all from your pension and even then most people will not take any benefits until they retire around 65 when they are cashing in pension.

Cashing in Pension: Taxes

The beneficial tax treatment and lack of investment limits which allow any amount to be contributed but only receive tax relief on the higher of £3,600 or 100% of relevant UK earnings still makes pensions the desired choice for many above other such options like ISAs.

But if cashing in pension funds early is an option you feel suitable to your needs, what options do you have?

Cashing in Pension: Funds?

Cashing in pension funds is the term used to describe the process of pension release whereby an individual with a suitable pension fund(s) literally is cashing in pension funds to enable them to release up to 25% of the pension funds a tax free cash lump sum. The residual amount of the fund is then transferred to a new provider to continue to grow or receive an income, or may be sold to purchase an annuity should the individual desire.

Cashing in Pension: Limits

There are limits however on what types of pensions allow cashing in pension funds. For example, cashing in pension funds from a State Pension is not allowed, neither is cashing in pension funds for many final salary schemes that restrict taking benefits to members still within active service.

If you decide however that cashing in pension funds is suitable to your needs, then you should contact a qualified financial adviser to assist you to do so as they can perform the cashing in pension fund process for you and keep you informed each step of the way.

Cashing in Pension: Considerations

It is recommended however by the Financial Services Authority that pensions be used solely for providing an income at retirement and as such you should think carefully if cashing in pensions funds is the right thing for you as it could harm your income at retirement should you decide to start cashing in pension benefits.