Can I cash in a Defined Benefit Pension Early?
Advice you can trust
If you are aged 55+ and not currently paying into or receiving your defined benefit pension, you can cash in 100% of your pension early as a cash lump sum – up to 25% Tax Free.
Cashing in a Defined Benefit Pension Early – Case Study:
As part of our Defined benefit pension transfer advice this case study takes a look at cashing in a National Grid Defined Benefit Pension Scheme and was factually correct when it was written. Scheme rules an options could have subsequently changed .
The National Grid Pension Scheme is known as a Defined Benefit pension scheme and is therefore an extremely good pension with valuable benefits.
- When you reach retirement age 65, the National Grid scheme will pay you a regular pension income for the rest of your life (subject to Income Tax), which will increase each year. You may have the option of receiving a reduced pension in exchange for a tax free lump sum.
- If you die at any time only a ‘financial dependent’ such as a spouse would receive any money back and even then it will only be a fraction of the pension income you would have received.
Mr S L from London
Mrs L, age 55 from London, needed to clear debts in order to save several hundred pounds a month in repayments; these included credit cards and a loan. Her plan was to semi-retire by reducing her working hours and then fully retire in the next 4-5 years. She also wanted to give her daughter an amount towards a kitchen for her new home.
She was unable to take her benefits direct from the National Grid scheme as she was not yet 65, however, by transferring it to a personal pension she was initially able to release a lump sum of £36,000, which was enough to do everything that she wanted to do whilst leaving a further £183,000 invested in the personal pension for use later on.
*25% of the fund value is tax free; the balance would be taxed at your marginal rate depending on your circumstances and could be subject to change in the future.
**The beneficiary would be taxed at their marginal rate depending on their circumstances at the time of death.
This service only applies to pensions in the UK. Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.
If you releases all your money from your pension early you will not have anything left to provide you with income in retirement. Usually 25% of your pension can be released tax-free, the balance is taxed at your marginal rate at the time of release, this marginal tax rate could change in the future.
Need advice on cashing in a defined benefit pension?
Grove Pension Solutions Ltd is regulated by the Financial Conduct Authority.
We were established in 2007 so have many years of experience successfully helping 1000’s of individuals. Some of them we advised to transfer their pensions and some of them we advised to leave their pensions where they are and not transfer them.