How to unlock your pension for a cash lump sum

Pension Unlocking

If you are aged 55+ and have a pension you are not currently paying into or receiving you can cash in 100% of your pension as a lump sum – up to 25% Tax Free.

Pension Unlocking<br />
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Can I unlock my pension & receive a cash lump sum?

Pension Unlocking or early pension release is only available to individuals who are aged 55 or over and have a UK pension they are not currently paying into or receiving; it doesn’t apply to The State Pension.  You can still work when you unlock your pension.

You can release up to 100% of the pension fund value as a cash lump sum, the first 25% is tax free (Pension Commencement Lump Sum). The balance of the pension fund left over MUST be used to provide an income although this doesn’t have to be taken at the same time as the lump sum; it can be taken at a later date.

Pension Unlocking is often used when people want to take cash out of their pension early. Obtaining cash from your pension in this way is for the most part not advisable. Pension fund proceeds, whether they have accrued via an occupational scheme or private pension, are intended to provide plan members with an income during their retirement so to unlock pension benefits early would usually reduce eventual retirement income.

In some cases it is simply because an individual has a financial problem, which they are unable to solve any other way apart from accessing their pension early. If they have savings or some other way of raising money, such as a loan or borrowing it from a family member or friend, then they should consider these options first. However, these options may not be feasible or even possible and there are some circumstances when pension release maybe more suitable, for example, the only loan they can get is being charged at 15% interest but the equivalent loss from their pension is 10%.

Whether you surrender pension benefits from an occupational pension scheme or personal pension you can still usually take a cash sum as well as income. The tax free cash sum is known as the Pension Commencement Lump Sum or PCLS.

The income you receive will depend on a number of factors such as; if the money comes from a personal pension or occupational scheme, if you are married or not. To a certain extent you have a little more choice about how the income can be paid from a private arrangement compared with an occupational scheme. There is also an option to unlock pension cash sums without the need to take immediate income.

Unlock pension benefits early from any type of scheme, you need to consider your options thoroughly, which is where firms like Grove can help.

Types of pensions you can unlock

  1. Defined Contribution Pensions – Company, Personal, Stakeholder and Group Personal Pension
  2. Defined Benefit Pensions – Private Sector and Funded Public Sector Final Salary Pensions
  3. Local Government Pension Schemes (LGPS)

Your pension unlocking options

If you wish to unlock pensions such as Final Salary Pensions early, you will need to transfer your pension to a new personal pension scheme first. The introduction of the new Pension Freedom Rules now give you greater control and choice over your pension:

  • Transfer your pension to a UK approved pension contract, giving you greater control over the money in your pension. This allows you to access your pension fund when you need it, similar to using a bank savings account
  • Transfer your pension to a scheme that will pass 100% of your fund to your beneficiaries in the event of your death. Death Benefits are paid free of tax if you die before 75; death after 75 is taxed at the beneficiary’s marginal rate.
  • Take a cash lump sum to provide cash now. Up to 25% of your pension fund can be released tax free, the rest is taxed at your marginal tax rate applicable at the time you take it, which could change in the future.

If you would like to find out more about the options available to you and understand the implication to your tax position, your death benefits and future retirement income, Get Started Today and receive our free Information Pack on your Pension Unlocking options.

Other terms similar to pension unlocking

The main terms that are used regularly to describe the release of pension proceeds prior to retirement age include Pension Unlocking, Pension Surrender, Cashing in my Pension and Selling my Pension.

  • Pension Surrender; this is a peculiar term as surrendering is usually used in the context of not having a choice – you always have a choice in these matters and it it worth discussing your situation with an approved financial adviser before going through with the pension release process.
  • Selling my Pension; although it has entered common language, strictly speaking you are not able to sell your pension. Still, the term is often used when someone wants to take a lump sum of cash from their pension fund before retirement.
  • Cashing in my Pension; Cashing pensions has an obvious root, the pension holder obtain cash lump sums from their pension funds and so are considered to have “cashed in” their pension as opposed to receiving payments on retirement.

Not to be confused with Pension Liberation

It is important not to confuse Pension Unlocking with Pension Liberation, which is completely different. Companies who offer Pension Liberation usually say it is possible to release your pension BEFORE the age of 55 and your entire pension fund can be taken as a Tax Free cash sum. In the words of The Financial Conduct Authority “There is a high chance these are scams trying to con you out of your money”.

Pension Unlocking or Early Pension Release is the legitimate way to release cash from your pension and is only conducted by specialist firms, such as ourselves, who are authorised and regulated by The Financial Conduct Authority (FCA) and who only use HMRC approved products.

Pension Transfer Consultation

Get Started Today

Free Pension Transfer Guide & Consultation
If you would like to find out if transferring your pension or taking a cash lump sum is suitable for you, we can provide a free initial Pension Transfer Consultation known as abridged advice.

Simply complete your details below, and we will send you our Pension Transfer Consultation Pack and Enquiry Form.

As part of the consultation we will look at:

  • What existing pension plans you have in place.
  • What your plans are for retirement.
  • Your needs for flexibility and control.
  • The likely cost of more in-depth advice.

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Defined Benefit Pension Transfer Warning

Transferring away from a defined benefit pension scheme means you will lose valuable guarantees.

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 release all your money from your pension early you will not have anything left to provide you with income in retirement.

When releasing cash from your pension, usually up to 25% is tax free, the balance is taxed at your marginal rate at the time and could change in the future.

Watch the FCA video explaining the expectations of financial advisers when advising you on defined benefit pension transfers.

Grove Pension Solutions Ltd is authorised and regulated by the Financial Conduct Authority (Reference number 465051).

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