If you’re in your 50s or 60s and find you’re in need of additional income before you retire, it’s a good idea to consider releasing money from your pension fund. Doing so offers you the chance to get your hands on a sizeable sum of cash, but it’s vital you think the process through carefully.
Among the main effects of taking out pension money before you actually give up work is that it diminishes the overall value of your pot when the time does come for you to retire. This means that you may need to reassess what you want to do during your golden years and how you intend to finance your ambitions.
With that in mind, here are a few of the other questions you ought to ask yourself so you can be confident of making an informed decision that ultimately proves right for you.
Are you eligible?
As obvious as it sounds, you ought to establish in advance that you can actually withdraw money from your pension early. This is not an option that is open to everyone and generally speaking you must be at least 55 years old before you can be considered for the service. You’ll also need to have a minimum amount of money tucked away in order to release some of your savings. While this will vary on the particular pension company you use, you can take it as a given that you’ll require £15,000, if not more.
What kind of pension(s) do you have?
Provided that you satisfy the criteria mentioned above, you’ll then have to make certain that the pension product (or products) that you own allow for early release.
You shouldn’t assume that all funds provide this option and you’ll never be able to do this with a state pension plan. Many other UK-based personal pensions – including small self-administered schemes and stakeholder pensions – do, however, enable you to do take cash out early.
However, if you discover your current scheme doesn’t allow this, you might have the ability to transfer your savings into a new fund that does offer the service. By doing so, though, you may be subject to higher costs.
What costs are involved?
As you may imagine, taking out pension money before retiring is not something most people tend to do and you ought to expect to face a fine for doing so. The amount charged will depend on a range of factors, including the company you select and the sum you want to withdraw (as a general rule, you should only expect to be able to take out up to 25 per cent of the total value of your savings).
What do you intend to do with the money?
Now on to the most exciting bit, deciding what you will do with the money! Many people who pursue this financial option will look to meet large one-off commitments like property improvements or going on a round-the-world trip. Alternatively, you might want to use the cash to set up a business or pay for a loved one’s care costs.
Of course, what you choose to do with your money is up to you, but it’s worth having a firm idea in place so that you can make the most of your cash.
Are you considering releasing money from your pension fund or have you already done so? If so, we’d love to hear what your thoughts on the topic are, so please leave a comment below.