Can I cash in my
pension to pay off
Using your pension to pay off debt
If you are aged 55+ and have a personal or company 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*
How to clear your debts using cash released from your pension.
The Pension Freedom Rules introduced in 2015 now allows people to access their pension funds early and use the cash to pay off debts, especially if the cost of servicing the debts is spirally out of control. There are many reasons why people find themselves in debt, such as ill health, redundancy, bankruptcy or even divorce.
You can use your pension to pay off ANY debts if:
- You are age 55+.
- You have a Personal Pension or Company Pension you are not longer paying into or taking.
- You can be employed and continue to work.
Type of Pensions you can cash in to clear your debts:
- Defined Contribution Pensions – Company, Personal, Stakeholder and Group Personal Pension
- Defined Benefit Schemes – Private Sector and Funded Public Sector Final Salary Pensions
- Local Government Pension Schemes (LGPS)
- Does not apply to the State Old Age Pension
WHat are your Options?
There are several options available to you:
- 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.
- Transfer your fund to a UK approved pension contract that gives you control over your money. You can then access your money when you need it, similar to using a bank savings account.
- Leave the rest invested in a trusted scheme to provide cash for another time
- Transfer your pension to a scheme that will allow you to 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.
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.
Case Study: Paying off debts with your pension
As part of our Pension Release guide, here we take a look at an example of how funds acquired through pension release can be used to clear existing debts and plan for those unforeseeable emergencies that can and do crop up.
When Tom first looked into pension unlocking, he was bankrupt, having had his catering business fail due to circumstances out of his control, and still left with an outstanding loan that hadn’t been covered in the bankruptcy. Between his wife and himself, Tom calculated that the couple’s total debts amounted to £9,400. Their wish was to pay off the debts then acquire more funds to put towards an emergency fund.
Tom initially looked into pension release as he thought that the three personal pension plans were too insignificant to provide a sufficient income in retirement, so he figured he could “cash up” and use the funds to assist in getting the couple’s life back on track. Tom considered the sacrifice of the pension funds to be a small inconvenience compared to the stress that the couple were going through at the time as they were unable to live within their means.
Grove Pension Solution’s advice in this situation was to transfer his three pensions into one plan, and as a result, a total cash amount of £13,365 was released. As income was not required, the remaining balance of the pension fund would be left invested to a later date.
The released funds provided Tom with enough money to clear the £9,400 debts he and his wife had accrued and still have money left over for their planned emergency fund.
Had Tom’s circumstances been a little different pension release may not have been suitable. For example, had he not been a bankrupt he may have been able to restructure his debts into one larger amount over a longer period, this would have achieved reducing the monthly cost of his debts, which in turn meant he could live within his means and therefore not required to unlock his pension. Or had his pensions been company pension schemes the loss of what he would have otherwise got at retirement might have been too much to justify pension unlocking.
This is why it is so important to seek professional advice from a company like Grove Pension Solutions. We can make sure all your circumstances are looked at individually and any recommendation is suitable for you and your specific situation.
Need advice on how to access your pension to pay off debt?
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.
CURRENTLY IT'S FREE TO KNOW YOUR OPTIONS
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Very helpful & informative staff who understood my situation & why I had to release funds. I was informed that it could be a bad decision to proceed & was put under pressure not to, which doesn’t make sense as Grove wouldn’t make any money.
Found your service to be very professional. Your staff were polite and friendly ready to explain / clarify any query I had relating to release of my pension fund(s). Even went the ‘extra mile’ to update me via phone and text.
Pensions are an incredibly difficult subject to grasp but the team at Grove Pension Solutions went out of their way to explain, in plain English, the pro’s and con’s with regards to the pensions even if it meant that they wouldn’t get as much business. They really did put the client first which is a refreshing change to the financial culture of today. I was very happy with the service and satisfied that my pensions are in safe hands.
The Grove Pension Release company are very helpful who go through every aspect step by step so that you understand. … The service you get is A1 and the staff are polite and helpful in every way. The response and service I got was second to none.
Definitely I would recommend Grove Pension Release to anyone as they give personal and friendly help to people who need help, where other companies don’t.
I found the service very good, everything was explained in simple English, which made it easy to understand. The advisor was polite and very helpful.
The advisor explained everything and took time to make sure I understood what he had said. Service provided prompt information clear and easy to understand. Staff polite at all times. Everything they said would happen did in time frame told.
Grove made all aspects of the pension release process very clear and precise, and kept me up to date on what stage my pension unlocking was at. Very professional at all times.
Grove Pension Release provided a very proficient service regarding my pensions review and pension release. My future pension needs have been fully reviewed and look forward to your support and working together in future years.
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