If you are over 55 and have the right pension – yes you can! This is great news for people in the UK at the moment, as the official retirement date seems to be getting further and further away. But why would you want to use hard earned cash which has been saved for your later years? Isn’t this a bit risky?
Use the guidance of a regulated financial advisor
Clearly money put aside for your retirement years was put there for a reason. To diminish those funds could be putting your retirement in danger. For this reason, you should never mess with your pension pot alone and get the guidance of a regulated financial advisor if you are thinking of releasing money. These professionals are accountable to the FCA. Many offer a no-obligation pension check and can help you understand the options available to you. They can let you know if releasing money is right for you or not, based on your individual circumstances. It could leave you worse off in retirement.
In other words, as you approach your final working years you can double check that your pension pot is strong enough to fund a long retirement and also consider how you can use your savings to help you with debts, treats or big buys in the here and now.
So how do you access your pension?
In 2015 the government in the UK introduced pension freedoms. They allow people to take lump sums from their pension or a regular income, from the age of 55. You can only do this with work pensions or private pensions. You cannot access your state pension or unfunded pensions. If you have a final salary pension you can transfer monies to a fund which offers access. However, be careful as you could be giving up valuable guarantees. Before you do this get guidance as to whether having access to your pension will be detrimental to your long term benefits.
What are your options?
Here are three fundamental ways in which you can access your pension savings:
- One lump sum
- Taking out lump sums whenever you need them
- Income drawdown. In other words, you draw down your pension as a regular income.
The first 25% of any money you take from your pension will be tax free. Any money left in your pot will continue to be invested by your pension provider. As seen above, you can take as many lump sums – if and when you need them. With drawdown you can create an extra income for yourself which could act as a sole or complimentary income.
Why do people access their pensions?
Throughout our working lives our hard earned cash tends to go on five specific things:
- Sustenance. i.e., paying for those things we need just to allow us to live comfortably
- Those treats we give ourselves on a weekly/monthly basis
- Short-term savings (i.e., that holiday to America next summer; that new sofa you have been promising the family; rainy day money)
- Emergency funding (that unforeseen urgent bill etc.)
- Long-term savings (i.e., a savings pot for retirement)
There is always going to be the time when you need that extra bit of cash urgently. It seems people access their pot for reasons 3 and 4 above. Statistics from 2018 show people tend to access their part for the following reasons:
- 32% to tackle a debt
- 21% to make house improvements
- 10% to buy a new car
See here how people are using pension freedoms in the year 2019/2020.
Whatever you do – don’t go it alone. Seek out the guidance of a regulated financial advisor to ensure your pension pay-out will be maximised after any access or indeed if it is a good idea at all. Check out the FCA website to get ideas as to where to find an advisor.
If you are considering your pension, consider using a regulated pensions specialist like Portafina or, view the information guides at The Pensions Advisory Service.
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