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Pension Release

Thanks to a recent change to the governing regulations, there are now more ways than ever to access funds in your pension pot.

We’ll go through the various ways in which you can legitimately get hold of your pension funds and help you work out the best time to do so.

What is pension release?

Pension release, or pension unlocking, is the act of accessing your pension funds before you reach retirement age.

This means that you can withdraw lump sums of cash from your pension pot rather than only accessing it by means of a regular income once you’ve retired.

When can I take money out of my pension pot?

The regulatory changes, introduced in April 2015, allow you to release the money contained in your pension pot from the age of 55 onwards. There are some caveats that also allow those under the age of 55 to unlock their pension but only if they are in particularly poor health.

When you reach 55, you are allowed to withdraw up to 25% of it, tax-free, and then turn the remainder into a taxable annuity, or life income.

You are also now allowed to withdraw the remaining 75% if you wish to, as of April 2015, though it will be treated as taxable income.

Bear in mind that while the above is what applies as part of the new government regulation, your own pension scheme may have further restrictions in place that prevent access before you reach retirement age.

If you are uncertain about what you are allowed to do under the terms of your pension scheme, contact your pension scheme administrator and they will be able to let you know. If you have a workplace pension scheme then you will (usually) require the consent of your employer (or ex employer) before you can access funds early.

Once you reach the appropriate age (and if your pension scheme allows it), you can legally start accessing your pensions funds, but there are a few things you should think about before hastily withdrawing.

Should I unlock my pension?

Before you decide to release any of your pension funds early, you should ask yourself some of the following questions:

How much more money would I get if left it in?

Apart from anything else, if you do choose to access your pension early, you are pretty much guaranteed to reduce the amount you’d receive compared to what you’d get if you left it invested.

Why do I need the cash now?

If you do choose to release the 25% of your pension fund as soon as you hit 55, it can allow you to reduce your working hours or even to retire early. These can both be valid reasons for a pension release. However, if you’re doing it to top up on spare cash or for an extravagant purchase it’s worth thinking twice before you do so.

What charges will I face for releasing some of my pension funds early?

In some cases, a variety of different early release or penalty charges may apply to those trying to access their money before retirement age. Exactly which charges might apply to you will depend on a variety of factors including your age. If you’re unsure about what you might have to pay, get in touch with your pension scheme administrator.

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