I want to cash in my pension early, what do I do? Accessing your pension earlier than the state retirement age may seem like an attractive proposition, especially if you are facing hard times. You may also be approached by companies who offer you the opportunity to access your pension fund for cash. What may seem attractive at the time is fraught with danger and may destroy the retirement for which you’ve been saving.
Before even considering this route, think very carefully, as it may severely compromise your retirement possibilities. You’ll also likely get much less back of its real value.
However, some people find themselves in a position where they need cash, and small pensions can appear a desirable target if other capital sources, such as loans and home equity, have dried up.
If you have reached state retirement age and the total of ALL your pensions is less than £18000, then, under triviality rules you may cash out the entire amount. The catch though is that you will only get 25% tax-free and will pay tax on the remaining 75%.
If you are below state retirement rules, things get complicated and risky. Most people can’t access their pensions until the age of 55. Even then there are rules as to what you can and cannot do without incurring a hefty tax charge.
Most pension funds have rules about early retirement and will levy hefty commissions and other charges to give you access to your money. Then, of course, the tax man takes his chunk too.
The term ‘pension liberation‘ has recently risen to notoriety, resulting in the Government warning the public about potential scams.
Pensions Liberation is a scheme operated by companies claiming to exploit a loophole in the law and provide you with access to your pension fund earlier than normal.
These companies work off-shore, and while many are maybe genuine, they should be avoided for many reasons. Most notable is that you are essentially transferring your pension to a company who will then provide you with cash in return. The catches are many, particularly the hefty fees and commissions these businesses can take; as much as 20% of your fund.
I want to cash in my pension early, what do I do?
You’ll still have to pay tax on the money you receive too, as much as 55%. So, not quite such as a good deal then!