Early Pension Release Information

The scoop on early pension release: In the UK pensions are considered vital for saving for individuals until retirement by the Government and they advise everyone to have at least one plan to ensure that they have a suitable income when they retire.

An estimated £27 billion shortfall exists in today’s market between what people should be saving and what is actually being saved in their pensions. A result of this the average income of a UK adult retiring in 2008 was £18,663 from their pension which is roughly £5,000 less than the average income for a working adult at the same time. That’s where an early pension release can be beneficial.

To combat this the Government encourage people to open up their own pension account either with their employer or as a private pension to gain early pension release benefits.

Traditionally a pension is taken upon retirement, however, there are circumstances that early pension release may be taken by an individual (these circumstances should be discussed with a qualified independent financial adviser to ascertain their appropriateness) allowing them to have direct access to their pension benefits before their actual retirement date.

What is Early Pension Release?

Early pension release is the process whereby you are able to take benefits from your pension before your expected retirement date.

Early pension release benefits may be taken as a 25% tax free cash lump sum through drawdown (which will then be reinvested into a new pension scheme) or even the taking of an annuity or triviality (if you qualify for an early pension release).

However, early pension release is not possible from a State pension or a pension scheme you have already taken full benefits from (known as crystallisation). It is also worth noting that some final salary schemes do not allow you to take early pension release under certain circumstances and it is therefore worth enquiring with your scheme whether they do or not.

A further early pension release limit that applies is that early pension release cannot be taken before you reach the age of 55 so it is important to ensure you are within the appropriate age range.

If your pension scheme is not restricted by any of these limits and you are of appropriate age then you should be ok to take early pension release.

However, it should be noted that pensions are designed to meet your financial requirements at retirement and the Financial Services Authority (FSA) suggest that you should think carefully before deciding to take early pension release as it could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances.

If you feel early pension release is right for you then you should contact an appropriately regulated IFA to seek advice on how to proceed with the early pension release.