Pension Release

Gives you more flexibility than ever

There are lots of different reasons why people want to release money from their pension, not least of which could simply be that you are now retiring and want to access the money from your pension to help with daily living expenses.

For others, it could be about paying off debts, starting a business, travelling and many, many more reasons.

The one thing everyone does have in common is that they want to be able to benefit from a pension that allows them to have Flexible Retirement Options, Investment Freedom and to take advantage to Improve Death Benefits.

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Investment Freedom

Whether you are transferring an old company Defined Benefit (DB) pension scheme or simply consolidating a few smaller personal pensions (Defined Contribution – DC schemes) you will need to make some decisions about how your money is invested.

We can help you every step of the way and provide guidance and advice as to what is going to suit you best. Whether you are a sophisticated investor or have no experience whatsoever, there is a solution for everyone.

The bottom line is we will help you balance between how much investment risk you are willing to accept, if any, against what sort of returns (investment growth) you are looking to achieve.

Some of you may also be interested in ensuring that some or all the money you invest, is done considering Environmental Social Governance (ESG), in other words, with ethical or green issues being considered. These funds can still produce good returns and can cater for a varying range of attitudes towards investment risk.

You can read more detail about Investment Risk and Volatility in our Knowledge section in the menu bar above.

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Flexible Retirement Options

You now have the flexibility to withdraw as much or as little as you like from your pension fund, either as one-off cash payments or, taking regular smaller amounts as income.

The amounts can be varied in size and regularity; you can alter payments to fit your changing circumstances. You must be careful you don’t run out of money though.

If it suits, you can exchange part of your pension fund into an annuity, which will provide a guaranteed income for life.

When releasing cash payments, up to 25% of your pension fund is paid tax-free, on the rest you will have to pay income tax at the time you take it. Please see the WARNING below.

You can choose to just release the tax-free cash or, it may be more suitable to take a little tax-free cash and a little taxed cash at the same time, it will depend on your personal circumstances.

We can help you with these decisions and make sure you understand the risks and consequences of them all.

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Improved Death Benefits

Whether you have transferred your old company pension scheme into a new arrangement or, you have decided to consolidate several small pensions into one, easy to manage arrangement, the bottom line is this is your money.

Just because this cash is sitting in a pension fund, it’s still your money so either you take it out to benefit you or, if you die, the money you haven’t used up can be paid out to whomever you like.

Unlike a lot of old company schemes, you are not restricted to death benefits only being paid to a spouse or dependent; you can have any money left over paid to anyone you like or any organisation you want, such as a charity for example.

You may choose not to take any money out of this pension for yourself, maybe because you have other retirement income, in which case you could leave the whole lot to your children or grandchildren as part of your inheritance tax planning.

If you die before age 75, then any unused funds are paid inheritance tax free; if you die after age 75 then any unused funds will have tax levied on the recipient at the time they take it and at their marginal rate.

Warning

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. 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.

Pension Release FAQ’s

Am I eligible?

If you’re aged 55 or over and have a pension that you’re not already receiving then you are eligible to access it now.

However, not all personal pensions have adopted all the new flexible access rules. For example, you may just want to release 25% tax-free cash from your plan and leave the rest until a later date and this might not be possible from your current arrangement.

If this is the case, don’t worry, because you can transfer into a new plan that will give you all the options and flexibility that you need.

Is pension release legal?

Yes; legitimate pension release schemes are only offered by FCA regulated specialist advisers and only applies to people aged 55 or over.

If a company offers to release cash from a pension before the age 55 there is a high chance that these are scams trying to con you out of your pension and will often leave you with a hefty tax bill or even worse you could lose your entire pension pot.

These scams are know as Pension Liberation schemes which often use similar language to legitimise Pension Unlocking or Pension Release arrangements.

How much cash can I release from my pension?

This will depend on how much money you have in your pension in the first place; with your permission we’ll find this out for you. It will then depend on whether you want to take a cash lump sum or if you’re looking for income, or both.

CASH LUMP SUM

You can release up to 100% of your pension fund as a cash sum, whether it originates from a Defined Contribution plan or Personal Pension, private sector Defined Benefits scheme or funded public sector pension scheme.

25% of your pension fund is tax-free but any balance is liable for Income tax at your normal marginal rate.

Please remember that future rates of tax can change and actual tax treatment will depend upon your individual circumstances at the time.

INCOME

You have a choice about whether to buy what is known as an annuity, or leave your pension fund invested and “draw down” an income each year or as and when required.

For an annuity, which can be payable for the rest of your life, how much income you can have will depend on a number of things, such as your age, health and what death benefits you want included.

When you want to take income from your pension you don’t have to take it from the pension plan provider with whom you have been saving. In fact it’s probably better that you don’t! In other words, you may save through a pension for many years but when you decide you want income from it you can shop around for the best deal.

What are the advantages of releasing less than the maximum cash lump sum?

You can take less than the maximum cash sum allowed, even if this option isn’t offered to you by your existing pension provider.

This is very useful for those people who don’t need to release the whole amount all in one go. For example: you may have a need for a specific cash sum, which is less than the maximum you could take.

By only taking what you need it has the advantage of leaving more money invested in your pension. This means more should be available for you at a later date, although the value of your fund can go down as well as up.

You do not lose your entitlement to the balance of what you didn’t take. This balance can be taken when you retire or even sooner if you have a change in circumstances and need it.

Again, there are both advantages and disadvantages with this option so it’s important to make sure you are aware and understand both. 

What if I only want income?

It’s possible to take just income from your pension without releasing a cash sum and there are a number of ways you can do this.

One option is to buy an annuity, which is simply handing over your pension fund to an insurance company and them promising to pay you back a regular income for the rest of your life.

The annuity market is very competitive and the rates differ between companies. It’s possible to substantially increase your pension income by purchasing your annuity from the company with the best rates, which means you get the biggest income. This is called “Exercising the Open Market Option” and it usually costs nothing, with the exception of an adviser’s fee or commission. There are many different ways an annuity can be paid to you, so it’s important to make sure you get the right one and at the best possible rate.

You can also take advantage of enhanced rates if you are a smoker or in ill health, which basically means you get a bigger income if you smoke or your health is such that it could affect how long you live.

As an alternative to buying an annuity it may suit you better to leave your pension fund invested and simply draw an income directly from it. This way you don’t have to hand over all your money to an insurance company in exchange for an annuity. However; there are risks with this that you’ll need to be made aware of and understand, not least of which is either you deplete your fund by taking out too much too quickly or, your investments drop in value.

Whichever option you choose it’s always a matter of making sure you get the one that best suits you both now and in the future and that you are fully aware of the disadvantages as well as the advantages. Any income is subject to Income Tax at your marginal rate, which may change in the future.

If I take ongoing regular income how will this be paid?

When buying an annuity, you have the choice of having it paid annually, half yearly, quarterly or monthly; either in advance or arrears and either increasing each year or remaining level in payment throughout.

Alternatives, you can leave your pension fund invested and simply “draw-down” what you need when you need it.

Will I have to pay extra tax?

You can usually take up to 25% of your pension fund tax free. The remaining fund is liable for Income Tax, which is dealt with slightly differently depending on whether you take further cash payments from your invested fund or exchange it for an annuity.

An annuity has tax deducted in much the same way as if you were receiving that income in the form of salary.

A lump sum payment over and above the tax free amount is taxed at your highest marginal rate, depending on your circumstances and could be subject to change in the future.

What happens to my death benefits if I die?

In the event of your death you can also make provision for a pension to continue to be paid to your spouse or partner or dependants free of inheritance tax.

With your existing pension it will depend on the rules of the arrangement. This is one of the things we’ll look into for you. For example; an occupational pension scheme can only pay death benefits to your spouse or a dependant whereas an individual arrangement can pay them to virtually anyone.

There are also tax differences between ongoing pensions paid to beneficiaries depending upon which type of scheme they are paid from. If paid as a scheme pension from a Defined Benefit scheme then it is taxed as part of the income of the beneficiary. If paid as an annuity or income from a draw-down pension arrangement then the income is tax free as long as death occurs before age 75. On death after age 75 it is taxed as income of the beneficiary.

The death benefits of any new pension release arrangement will depend on which options you’ve chosen.

We’ll provide you with full details about your options and explain them to you in a way you can understand.

Will this affect my state benefits?

For those on certain State Benefits it may be advisable to limit yourself to taking just £6,000 tax free cash, thus keeping you below the threshold on losing your State Benefits.

This will depend on what benefits you’re receiving and how much money you want to take out of your pension. It will also depend on whether you take an income now or a lump sum and whether that lump sum is tax free or liable for income tax.

The decision as to whether your benefits are affected is usually made at your local benefits agency so you’ll need to check with them. However; we’ll be able to advise you how most benefits are usually affected.

In a lot of cases your state benefits are not affected if you simply adjust what you take out of your pension. Again, we will be able to let you know about this before you make any final decisions.

Can I still work and cash in my pension?

Yes you can cash in your pension even if you haven’t retired yet but need some cash now. If you’re 55 or over and have either a Personal Pension or old Company Pension you’re not currently receiving, you can cash in your pension even if it was originally set up to an older retirement age, of say 60 or 65. If, however; you are an active member of your employer’s sponsored pension scheme then it is extremely unlikely you should even consider taking money from that type of pension early as you would lose your employer’s contribution.

Is pension release a loan?

No. This is not a loan because the money is already yours; it’s simply a case of getting your own money out of your pension.

Am I selling my pension?

No. You would not be selling your pension in fact the rules don’t allow you to. Again, this is simply a case of you taking money out of something that is already yours.

Why do I need to speak to an adviser before cashing in my pension?

If your pension pot is worth £30,000 you are legally obliged to seek specialist FCA regulated advice. Your pension provider will not release your pension until they have confirmation that you have take regulated FCA  advice.

Defined Benefit Pension Scheme (company Final Salary Scheme)

 

Many schemes will not allow you access your benefits early, but if they do it is likely to be an all or nothing option. This is usually a lump sum payment and a pension income for life. If you only have a small amount in this type of pension you may be able to take the whole lot as a one off cash payment. All in all there is generally no flexibility in what you can do.

Most employer schemes will let you transfer your pension fund into a private arrangement, where you can take advantage of the full flexibility that the new pension freedom rules allow. You can take whatever cash payment that suits you now and leave the balance to take at some stage in the future.

You are also likely to have far better death benefits available from these plans.

Why speak to us? We can look at all these options for you, as we have the special permission from our regulator, the Financial Conduct Authority (FCA), to give advice on these types of occupational pension scheme. If you decide taking your pensions benefits direct is better for you then you can do that and if you don’t use our services then you don’t pay us anything.

In a nutshell, by asking us to look at your options you have nothing to lose and everything to gain.

See our guide to Defined Benefit Pension Transfer guide for more information

Defined Contribution Pension (Personal Pensions)

 

Whilst you can go direct with these types of scheme, it is quite likely you won’t be offered the full range of pension freedom flexibility available. You may just be allowed to take the whole amount as a cash sum in one go.

Again, as it doesn’t cost you anything to find out your options when using our service, you can look at your options and then make an informed decision about what suits you best. If you want to go direct, then you won’t have to pay us anything if you don’t use our services.

Please note that in both the above cases taking some or your entire pension as a cash sum will reduce the amount of income you will have during retirement.

See our guide to Defined Contribution Pension Transfer for more information

What's the risks of cashing in your pension early?

The most obvious problem with taking any money out of your pension now is that it won’t be available for you at a later date. You therefore need to make sure you’re making the right decision. Remember you may have another 20 to 30 years to live and will require income in that time!

You should always think about whether you would be better off borrowing the money you want instead or, if you have other savings or investments, should these be used instead rather than taking money from your pension.

If you’re considering taking money from your pension early you need to be aware that it would only be suitable for a very limited number of people and circumstances. It will almost certainly reduce your pension income in retirement and if you take 100% cash there will be nothing left to provide retirement income. Also, this should not be seen as an easy option for raising cash.

We will look at all your options and make a recommendation that takes this all into account.

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You can find out your options for free, it’s only if you proceed to Full Advice that a fee will be charged.

Types of pensions you can cash in early

Below is a guide to the different types of pension you can cash in at 55 plus.

Personal/Stakeholder, Group Personal Pension, some Defined Contribution Company Pensions.

Definition: Money is or has been paid by you and/or an employer, usually to a pension company into Personal Pensions, Stakeholder Pensions, Former Protected Rights Pensions and “old style” Retirement Annuity Contracts. They could be any type of Private Company Pension Scheme, Executive Pensions, Section 32 Buy Out Bonds, Final Salary Pension Schemes (also known as Defined Benefit Schemes) or Money Purchase Schemes (also known as Defined Contribution Schemes

The contributions are invested in a fund or funds and what you get will depend on investment returns and how much was paid in.

Can I just cash in and release a target sum of cash from my pension now?

YES – You can cash in any amount you need; however, it is likely you will need to transfer your pension pot into a new contract, which will allow you to take advantage of the new Pension Freedom rules.

There are a number of different options: you could take just the tax free part of your fund now (up to 25% of your pension pot), leaving the remainder to release at a later date (this part is liable for income tax).

Alternatively you may want to release an amount that is partly tax free and partly taxed; it will depend on your current circumstances and future plans.

Can I cash in and release 100% of my pension fund as a single cash lump sum payment?

YES – You can cash in and release 100% of your pension pot as a single cash payment, usually from your existing contract.

25% is tax free; the balance is liable for income tax.

With careful planning and forethought, spreading release of your payment over more than one year can sometimes save significant amounts of tax or the loss of state benefits.

Private Sector and Funded Public Sector Final Salary pensions

Definition: Also known as Defined Benefit Pensions, Final Salary Pensions or Career Average Pensions; these are typically provided by bigger employers, including Local Government Pension Scheme (LGPS) and Universities Superannuation Scheme.

You are guaranteed a pension in retirement based on your length of service and earnings.

Can I just cash in and release a target sum of cash from my pension now?

YES – You can cash in and release any amount you need; however, it is likely you will need to transfer your pension pot into a new contract, which will allow you to take advantage of Pension Freedom rules.

There are a number of different options: you could take just the tax free part of your fund now (up to 25% of your pension pot), leaving the remainder to release at a later date (this part is liable for income tax).

Alternatively you may want to release an amount that is partly tax free and partly taxed; it will depend on your current circumstances and future plans.

Can I  cash in and release 100% of my pension fund as a single cash lump sum payment?

YES – You can cash in and release 100% of your pension pot as a single cash payment; however, you will have to transfer your pension pot into a new contract, which will allow you to take advantage of Pension Freedom rules.

25% is tax free; the balance is liable for income tax.

With careful planning and forethought, spreading release of your payment over more than one year can sometimes save significant amounts of tax or the loss of state benefits.

Unfunded Public Sector Final Salary Pensions

Definition: Known as Defined Benefit schemes, Final Salary Schemes or Career Average Pensions such as the NHS, Teachers’, Police, Civil Service, Armed Forces and emergency services schemes etc .

You are guaranteed a pension in retirement based on your length of service and earnings.

Can I just  cash in and release of cash from my pension now?

NO – These types of schemes are banned from transferring into a Defined Contribution pension and as a result are unable to take advantage of the flexibility Pension Freedom allows.

You are only able to receive benefits direct from the pension scheme and dependant on the rules of that scheme.