Unlocking your pension seems like an offer that is too good to be true, especially when many families and individuals are rather strapped for cash and missing those little luxuries that they were able to indulge in a few years ago.
But is releasing funds from your pension pot the right step for you or should you continue to sit on your nest egg until you reach retirement age? Releasing your pension, or ‘selling’ your pension as it is often referred to, entails transferring your personal or company pension to a new provider or scheme. During the transfer you can opt to access up to 25% of your fund as a tax-free cash lump sum. Dipping into your pension will mean a smaller pot when the time comes to retire but many people are seeing this as a viable option to counteract the difficult economic times we are currently contending with.
The big question to answer when considering a umbrella pension trust is ‘can I afford a smaller pension in the long run?’ Whilst cash now may seem rather attractive, many fail to realise just how much this will affect the sum you receive in retirement. If you currently have a private pension of £50,000, you would be set to receive around £250 per month after retirement, but with an early release you will receive just £187.50 each month.
The term ‘tax-free’ reveals one of the major advantages of unlocking your pension early, any funds released now will not be subject to tax but if you access the same funds when you reach retirement age, you will pay income tax on each payment. Do your calculations and find out whether you can take the hit after retirement and succumb to the tax-free treats that come with selling your pension.
But is releasing funds from your pension pot the right step for you or should you continue to sit on your nest egg until you reach retirement age? Releasing your pension, or ‘selling’ your pension as it is often referred to, entails transferring your personal or company pension to a new provider or scheme. During the transfer you can opt to access up to 25% of your fund as a tax-free cash lump sum. Dipping into your pension will mean a smaller pot when the time comes to retire but many people are seeing this as a viable option to counteract the difficult economic times we are currently contending with.
The big question to answer when considering a umbrella pension trust is ‘can I afford a smaller pension in the long run?’ Whilst cash now may seem rather attractive, many fail to realise just how much this will affect the sum you receive in retirement. If you currently have a private pension of £50,000, you would be set to receive around £250 per month after retirement, but with an early release you will receive just £187.50 each month.
The term ‘tax-free’ reveals one of the major advantages of unlocking your pension early, any funds released now will not be subject to tax but if you access the same funds when you reach retirement age, you will pay income tax on each payment. Do your calculations and find out whether you can take the hit after retirement and succumb to the tax-free treats that come with selling your pension.
