Specialist FCA Regulated Pension Advice
Can I cash in my pension early due to Coronavirus?
If you are aged 55 or older then the answer is probably yes. However, as tempting as it might be to help bridge the financial gap if you’ve lost your job and can’t pay your bills, be careful not to make a rash decision.
Accessing your pension early due to Coronavirus Covid-19
The Coronavirus Covid-19 is the biggest peacetime crisis we have ever faced and has left the world in turmoil. Unfortunately, the impact of the coronavirus will be felt for many years to come, whether it be losing your loved ones, losing your job or facing financial hardship.
Many people are now finding themselves out of work or without income because of the coronavirus, and are trying to find ways to raise cash to get them through these turbulent times. With the introduction of Pension Freedom most people aged 55 or over can access their pension early.
For some people this could be the lifeline to provide financial stability in the unprecedented times caused by the coronavirus, for others it could be a big mistake.
If you have a Defined Benefit pension you are not currently paying into or receiving, most people will have the option to transfer your old pension scheme into one that allows you flexible access now; taking a little money out immediately to bridge the financial gap if you’ve lost your job and can’t pay your bills. However, if in the future you find work again or, somehow manage to reduce your expenditure, then these type of pension plans give you the flexibility to stop taking money out of your pension, if you don’t need it, and leave it invested for a later date when you will need it again.
By transferring from your old Defined Benefit pension into a new, flexible arrangement, you will be moving out of a scheme that has no investment risk into one where you take all the investment risk. That doesn’t mean it isn’t a good idea, it just means you need to make sure you understand the consequences of what you are doing. You can choose high risk investment or low risk investments, just make sure you get expert advice on what is best for you. For example, you could start off with one type of investment risk and move into another in future months or years.
Some investment experts believe this could be a good time to invest in the stock market, when it is very low, that way you can take advantage of the upswing when it happens. What you decide to do will largely depend on your capacity for loss and attitude for investment risk.
Our expert advisers can talk through all of this with you and help analyse your options before making any final decisions and making any commitments. They will explain your options to you, in plain English. That way you can be sure you understand the risks and benefits before you choose what is best for you.
Alternatively, many Defined Benefit schemes will allow you to take a reduced early pension, so if you don’t want any investment risk this option, if allowed, might be best for you. The benefit of this being that your income would be guaranteed for life and go up each year, roughly keeping up with inflation. This might suit you better, although it doesn’t allow for any flexibility and is an “all or nothing” option for most.
Just remember, taking benefits early means you will have less retirement income in the future and it will only suit a limited number of people and circumstances – if at all possible, for most people the best option is just to leave your pension alone and take it at your normal retirement age.
Retirement planning is a complicated matter even at the best of times. However for some, the coronavirus is making the balance between providing for the future whilst getting through the present, harder and harder to reconcile.
How to avoid a Pension Scam
If you follow these five steps, you won’t be scammed:
- Check that the firm you are taking advice from is FCA regulated. You can easily look them up on the FCA register
- Check how long they have been doing this for and ask what experience they have. Again, the FCA register will tell you their Status Effective Date
- Make sure the advice you receive is provided in writing and you are given time to digest that information, without being rushed or pressurised into making a rash decision
- Make sure you understand what you are doing and have been told about the downsides as well as the benefits – don’t be afraid to ask questions if you don’t understand. Even get a trusted friend or family member to look at the advice as well
- And be careful, if the investment advice sounds too good to be true, it probably isn’t true. Only invest in FCA regulated investments
Recently reports have been circulating that there are an increasing number of costly pension scams operating in the UK since Coronavirus hit. When considering your options for pension release, always ensure you conduct due diligence during your research, and only share details of your pension with companies authorised and regulated by the Financial Conduct Authority (FCA), and clearly displaying their reference number. For more information on how to protect yourself, please visit The Pensions Regulator’s guide to Pension Scams
Type of pension you can access early
There are several types of pensions your are allowed to access early:
Defined Benefit Pensions/Final Salary Pensions
- UK Employer Funded Final Salary Pension Schemes (Defined Benefit Pension Schemes)
- Funded public sector pension scheme such as Local Government Pension Schemes (LGPS
Please see our guide to Defined Benefit Pension Transfer for more information.
Defined Contribution Pensions
- Personal Stakeholder Pensions
- Self Invested Personal Pension (SIPPs)
- Small Self Administered Schemes (SSAS)
- Workplace Pensions
- Executive Pension Plan
- Group Personal Pension
- Master Trust Pension
Please see our guide to Defined Contribution Pension Transfer for more information.
Type of pension you cannot access early
Since April 2015 you are not allowed to transfer an unfunded public sector pension.
Unfunded Public sector pensions are pensions that have no funds. They are paid for by the taxpayer as you take your pension. Teachers, firefighters, NHS workers, police and armed forces are all unfunded public sector pensions which means it’s not possible to transfer.
You can not cash in State Pensions.
What are my options?
If you are aged 55 or older and not currently paying into or receiving your pension, for most people you can take advantage of the Pension Freedom rules and transfer your pension(s) into a private pension arrangement. This will allow you to access your pension earlier from age 55.
It is critical at this time of uncertainty that you fully understand the options, benefits and risks before you decide to cash in your pension early.
- Cash Lump Sum: You can take a 100% cash lump sum – the first 25% is tax free. The rest is taxed at your marginal tax rate applicable at the time you take it, which could change in the future.
- Investment Freedom: Unlike your old defined benefit scheme, you take control of your money and invest it in the way you want to.
- Flexible Retirement Options: You no longer have to take all of your pension in one go, you can now have more choice and flexibility in how much you take and when you take it.
- Potentially Improved Death Benefits: Unlike an old company defined benefit pension scheme, by transferring to a new arrangement you can make sure that 100% of your pension fund can be paid to whomever you like.
- Loss of Pension Benefits: Taking benefits and cash early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances.
- Cash Lump Sum: Cashing in your pension should not be seen as an easy option for raising cash. If you release cash from your pension early you will not have anything left to provide you with income in retirement.
- Investment Risk: The value of your pension pot may go down due to poor performing investments.
- Loss of Guarantees: A defined benefit pension pays a guaranteed income for life, which roughly increases with inflation; this will be lost if you transfer out.
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 release all your money from your pension early you will not have anything left to provide you with income in retirement.
Coronavirus Pension FAQ’s
Below we have listed the frequently asked questions about accessing your pension early due to Coronavirus.
Can I cash in my pension early because of the coronavirus?
Yes. For most people, if you are aged 55 or older and not currently paying into or receiving your pension, you might have an option to take it direct from your existing scheme, if not, then you can usually transfer into one that does give you immediate access and will allow you to cash in 100% of your pension early. The first 25% is tax free. If you take more than 25% the rest will be taxed at your normal marginal tax rate.
Will the coronavirus affect the value of my pension fund?
Yes. The coronavirus has causing stock markets to crash around the world. Read our news post “How will the Coronavirus affect my pension value” for further information.
Is my pension protected if my employer goes bust because of the coronavirus?
Maybe. If you have a Defined benefit pension, the Pension Protection Fund (PPF) will normally protect your pension fund and bail out the pension scheme to the tune of 90% of the pension funds value.
However you must make sure that your pension scheme is registered in the UK. If it isn’t the PPF cannot protect your pension, as Flybe employees found out to their horror.
If you have a Defined Contribution pension, where your money is invested in the stock market, then you take all the risk. So if the stock market fall means your investment goes down, then you’ve lost money, however, this is only if you cash any of it in.
If you can leave your fund invested, eventually the stock market will rise again and so will your investment.
Will the coronavirus affect the CETV of my defined benefit pension?
Money Marketing recently reported that defined benefit pension cash equivalent transfer values (CETV) were going up in value because of the stock market crash caused by the coronavirus. Read our guide to Defined Benefit Pension Transfer for further information on how Defined Benefit Pension CETV’s works .
Will the coronavirus affect my defined contribution pension transfer value?
Defined contributions pensions funds are usually linked to stock market performance in some way. If the stock market crashes, so will the value of your pension fund and the amount you receive at retirement. See our guide to Defined Contribution Pension Transfer for more information on transfer values.
How can I protect my new pension from the affected by coronavirus?
The stock markets have become very volatile from the effect that the coronavirus has had on the world’s economy. Most pensions funds are invested over a range of low to high risk investments.
Low risk investments include government bonds and gilts. Medium risk investments include property, with high risk being the stock market. When you transfer your pension to a new scheme you can choose whether you want to invest your pension fund in low risk or high risk investment.
Protections can be put in place by moving all your money into cash, the problem with this is that when the ,markets go back up again, and they will, you won’t benefit from that growth.
How you invest your money will depend on your attitude to investment risk and your capacity for loss. If you have significant savings other than your pension, you might have the ability to take more risk in your investment choice. This is because if it does go down in value, you can weather the storm. It will also depend on how long your money is invested before you need to take some of it out.
Do in need to speak to an FCA Regulated Adviser?
By law, you must get FCA regulated financial advice before transferring a pension if you have a:
- Defined benefit pension worth more than £30,000.
- Defined contribution pension worth more than £30,000 with a guarantee on what you’ll be paid when you retire (eg a guaranteed annuity rate)
Further information can be found on the govenment Pension Wise website.
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Coronavirus Pension Resources
- The Pensions Advisory Service: Coronavirus – how will this affect my pension or investments?
- The Guardian: Coronavirus: giant UK pension fund says it is protecting small savers
- The Telegraph: Pensions doctor: should I delay retirement because of coronavirus?
- Actuarial Post: Coronavirus adds £100bn to DB pension deficits in a week
- Which?: Coronavirus: how to protect your pensions and investments amid stock market panic?
- The Pensions Regulator: Defined Benefit Pension Investment & Assets
- GOV.UK: Coronavirus (COVID-19): what you need to do
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Grove Pension Solutions Ltd is regulated by the Financial Conduct Authority. (Reference number 465051)
We are financial advisers specialising in helping people transfer their pensions early and have been doing this for many years now. We have provided professional advice to thousands of people over the years and have adopted the Personal Finance Society’s Pension Transfer Gold Standard initiative.
Our service allows you to evaluate your Pension Freedom options without paying a penny. It’s only if you decide to go ahead with releasing all or part of your pension fund that you pay a fee. You are under no obligation to go ahead if you don’t want to.
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