How Much Can I Free from my Pension?

You can take 100% of your pension fund as a cash payment; however, this could result in a significant tax bill or loss of state benefits.

You can usually free up to 25% of your pension fund as a Tax Free lump sum; the balance can either be taken as a lump sum too or used to provide income; either way it will be subject to Income Tax at your marginal rate, depending on your personal circumstances, which may also be subject to change in the future.

For a significant number of people wanting to free their pension early, not taking the whole lot in one go is likely to be the best advice; in fact, if anything, just taking the Tax Free cash sum on its own and leaving the balance invested to a later date is more advisable, especially if you’re working now. Any additional payments will simply be added to your earnings and taxed accordingly whereas leaving that money to take when you retire could mean you pay less tax.

For those on certain State Benefits it may be advisable to limit yourself to taking just 6,000 Tax Free cash, thus keeping you below the threshold on losing your State Benefits.

Others might be advised to free some Tax Free cash and some taxed cash if that’s more suitable.

The point is everyone’s circumstances are different and there are more choices now and more possibilities of getting it wrong if you don’t get professional advice from a specialist company.

One thing you can be sure of is that Ten’s Independent Financial Advisor will be able to advise you which option best suits your needs and circumstances, whilst pointing out both the disadvantages and risks along with the advantages and benefits.

If you want to find out more about your pension(s) then complete the “Quick Start” form now.

There is no obligation on your part and no cost just to find out your options.

What advantage is there to unlocking less than the maximum cash sum?

You can take less than the maximum cash sum allowed, even if this option, if not taking income, isn’t offered to you by your existing pension provider.

This is very useful for those people who don’t need to free the whole amount all in one go. For example: you may have a need for a specific cash sum, which is less than the maximum you could take.

By only taking what you need it has the advantage of leaving more money invested in your pension. This means more should be available for you at a later date, although the value of your fund can go down as well as up.

You do not lose your entitlement to the balance of what you didn’t take. This balance can be taken when you retire or even sooner if you have a change in circumstances and need it.

Again, there are both advantages and disadvantages with this option so it’s important to make sure you are aware and understand both.

What if I only want income?

It’s possible to take just income without a cash sum and there are a number of ways you can do this.

One option is to buy an annuity, which is simply handing over your pension fund to an insurance company and them promising to pay you back a regular income for the rest of your life.

The annuity market is very competitive and the rates differ between companies. It’s possible to substantially increase your pension income by purchasing your annuity from the company with the best rates, which means you get the biggest income. This is called “Exercising the Open Market Option” and it usually costs nothing, with the exception of an advisor’s fee or commission, to take advantage of this option. There are many different ways an annuity can be paid to you, so it’s important to make sure you get the right one and at the best possible rate.

You can also take advantage of enhanced rates if you are a smoker or in ill health, which basically means you get a bigger income if you smoke or your health is such that it could affect how long you live.

As an alternative to buying an annuity it may suit you better to leave your pension fund invested and simply draw an income directly from it. This way you don’t have to hand over all your money to an insurance company in exchange for an annuity. However; there are risks with this that you’ll need to be made aware of and understand.

Whichever option you choose it’s always a matter of making sure you get the one that best suits you both now and in the future and that you are fully aware of the disadvantages as well as the advantages. Any income is subject to Income Tax at your marginal rate, which may change in the future.

If this is something that interests you then just complete the simple “Quick Start” form now.

There is no obligation on your part and no cost just to find out your options.