Taking Pension Early

Pensions are a tax efficient saving vehicle that the UK Government recommend all individuals in the UK have in order save for retirement to provide an adequate income upon retirement. Currently too many people rely on their Basic State Pension and even their State Second Pension to provide them with suitable income when they retire but this is usually not enough for people who want to take pension eary to live on as it is not as high an amount as some may believe.

Taking Pension Early: Things to Know

It is important then for individuals interested in taking pension early to realise the relevance of creating their own personal or employer pension scheme so that they may have adequate provisions for retirement.

However, pensions are not always seen as the best saving vehicles for retirement as taking pension early can be a difficult thing to do, indeed you will usually have to wait till at least 55 before you can take any benefits from your pension and even then most people will not touch their benefits until they actually retire around the age of 65.

Taking Pension Early: Why?

Due to the beneficial tax treatment and lack of limits on investment amounts (you can invest as much as you like into a pension but you only receive tax relief on the higher of £3,600 or your relevant UK earnings) they are still the desired choice for many above other options such as ISAs when considering taking pension early.

But what if taking pension early is something that is attractive to you, what options do you have?

Taking Pension Early: How To

Taking pension early is not something that the Financial Services Authority the industry regulator promote, indeed they actually prefer individuals to keep their funds in their pensions as long as possible to reap the fullest reward possible from them. But under some circumstances this simply isn’t practical and many individuals may prefer to have access to a portion (if not all) of their benefits earlier then their retirement date so that they can enjoy them immediately rather than later, this is why taking pension early is such an attractive option to many.

If taking pension early is something you wish to do then you should seek advice from a qualified financial adviser as they may be able to help you and your circumstances. They will explain to you the options open to you and how and what you will receive.

Taking Pension Early: How much will you get?

Usually you will be free to take up to 25% tax free cash as a lump sum from your pension fund as part of taking pension early which you are allowed to spend on whatever you wish. You will however, be required to transfer your pension to another scheme as part of the taking pension early arragement.

Taking Pension Early: Decisions

Once you have decided if you want the tax free cash or not you may also decide to take an income. Should you not you can just reinvest the residual amount until you decide to take the benefits of taking pension early or retire. However, should you decide to take an income as part of taking pension early then you may usually either purchase an annuity or take income drawdown both of which allow you to an income from your pension fund value at selected intervals by you.

Taking Pension Early: Final Thoughts

It is worth noting however that you should consider carefully if taking pension early is something that is right for you as any benefits you take now may harm your income amount you are able to take when you come to retire and you should seek financial advice to help you understand all the risks involved.