Pension release is a provision in the UK that allows you to withdraw money from your pension scheme prior to full retirement. Eligibility for this procedure requires in the very least that the person is over 50 and has a UK pension plan. Other factors will be assessed on application before you can be deemed fully eligible to receive a tax free cash sum and/or income. For the most part, people go through with the process of releasing their pension funds as they may require some money now but not have reached retirement yet. Alternatively, an individual may be thinking about retirement and want to look at their options.
By taking pension benefits early, the applicant will reduce the amount of money they will receive in retirement, but it is a way of getting money out when you need it. A total cash sum of just over 25% of the full pension fund can be acquired in the first year after applying to have a pension unlocked. Nearly all of this is tax free. The money can be taken as Income immediately or left until a later date where it will be taxed as earned income.
A pension release applicant need not release all available cash benefits from their pension fund, and it is advisable not to do so if you do not need it all. Only take out what you need. If all the money allowed is unlocked, an applicant must be aware that the rest of your pension fund must be used to provide an ongoing income. This money can be taken immediately or it can be deferred (as from April 2006) leaving the pension fund available to take another time. The main advantage of taking less than the maximum available cash sum is that the undertaken money will stay invested in your pension.
Pension release also works by taking just an income without any cash sum immediately, and there different ways to do this. An annuity can be bought - in this case the pension fund is handed over to an insurance company and they pay back a regular income for the rest of applicant's life. The annuity market is a very competitive place and rates vary between companies. By doing some investigation and research, it is possible to substantially increase your pension income by purchasing an annuity from the company with the best rates.
The alternative to buying an annuity is to leave the pension fund invested and draw an income directly from it. This avoids handing over the pension funds to anyone else, but there are disadvantages that need noting.
As a best practice, advice should be sort before deciding to release money from a pension fund. It is important to make sure that the implications of releasing pension funds is fully understand before any decisions are made. Pension Release Experts can help with quotes for unlocking pensions according to the individual pension scheme.
This article was written on the advice of Grove Financial Planning, a provider of pension release schemes .
Robin Kemp is a freelance writer, available for writing content on a variety of subjects and based in Brighton, UK.