The Basics of the Pension Release

Many people are turning to Individual Savings Accounts (ISAs) rather than pensions for their retirement savings, simply because they feel that it’s impractical to lock away your money for your entire life until retirement. However, it’s important to know that those over the age of 55 have the option of pension release, which is a way to take as much as 25% of your pension in a tax-free cash lump sum.

The Basics of the Pension Release

This is generally not a course that is recommended to anyone who is not struggling significantly to raise capital, and many experts will first tell you to turn to a re-mortgaging, personal loans, or selling off other assets before dipping into your pension. In the end, the decision is entirely up to you, but it is imperative that you seek out advice from a pensions expert before deciding to pursue pension release.

Early, early release

Though pension release is sometimes referred to as ‘early pension release,’ it’s important to distinguish between the completely lawful practice of taking some of your pension at the age of 55 and the option that many new companies are offering: unlocking your pension before you are 55 years old. In many cases, these companies claim to be able to release more than 25% of your pension as well.

However, the Financial Services Authority (FSA) and HM Revenue and Customs (HMRC) have both warned against these schemes, with HMRC going so far as to say your unlocked pension may be subject to extra tax of up to 55% if you engage in one of these dodgy pension release schemes. In addition to the tax dangers, these companies don’t unlock your money for free — they usually take exorbitant commission fees and may even invest the remainder of your pension in a non-FSA regulated overseas pension.

The choice is yours

Despite the faulty pension unlocking companies that have sprung up in recent years, pension release remains a legitimate, and sometimes advisable, option for people who need to access some of their hard-earned savings. Again, it is crucial that you seek out professional pension advice before choosing pension release, because the process is almost certain to leave you worse off in retirement. It’s important to be sure that you will still have enough left after pension release to live your golden years in comfort.

Some people choose pension release as a way of getting their money out of an under-performing pension, and into an investment that has a larger potential for growth. Though for many years pensions offered unparalleled return on investments, recent years have brought bear markets and a recession that is hitting pension savers particularly hard. Some feel that their money could be better served elsewhere, and use pension release to get the ball rolling.