Cash from Pension

Are you looking to take just the cash from a pension? Sometimes called Tax Free Cash or Pension Commencement Lump Sum.

There are a number of ways to take pension cash, but to qualify for any of them you must be over age 55 and your pension fund from a UK source which you are not already drawing from.

Find out how much cash you can have from your pension

Generally you can take up to 25% of your pension fund as pension cash, tax free. It may be possible to take more pension cash than this if you pension is in an Occupational Pension Scheme. The Pension House can advise what the limit of pension cash will be for your own pension situation.

It is now possible to take 100% of your pension fund as pension cash, but it won’t all be tax free and there could be costly tax consequences. The Pension House will help you understand your tax liability of choosing this option.

Warning: Be aware of websites claiming that they can help you cash in your pension early.  Accessing a pension before age 55, unless you are terminally ill, could result in an ‘unauthorised payment’.  If you agree to this you could face a tax bill of more than half your pension savings. These websites provide no protection from the Financial Conduct Authority (FCA). In fact the FCA warn you against them, see link: http://www.fca.org.uk/consumers/scams/early-pension-release-liberation

Below are legitimate and regulated methods of how to take cash from a pension:

1) FLEXI ACCESS DRAWDOWN: A Pension Drawdown (sometimes called Income Drawdown, Income Withdrawal or Pension Release) is a personal pension plan that allows you to unlock the tax-free cash from your pension plans without taking out an annuity. Thereby allowing you access to the pension cash without necessarily taking any income (though you can take income too if you wish). You can also choose to take an income whenever you want to in the future either regularly or as ad hoc payments.

Because your pension fund has not been spent to buy an annuity, your pension fund remains intact (albeit without the amount you have withdrawn of course). This means your pension fund can continue to be invested.

A pension drawdown is an alternative to an annuity and gives greater flexibility.

2) UNCRYSTALLISED FUND PENSION LUMP SUM (UFPLS): This is new terminology brought in by pension freedom. Basically works by splitting your existing pension fund into many segments and then phasing in the rate at which you can take the benefits. Always each segment is worth 25% tax free cash and balance as income or to buy an annuity; useful if you need to manage income and taxation.

3) ANNUITY: (Skip straight to: Shop for an AnnuityAn annuity is an income for life. You swap your pension fund for a guaranteed income for the rest of your life. At the point of buying an annuity you can choose to take a Cash Lump Sum, but you must also buy an income for life to go with it. For more information about annuities go to : What is an Annuity.

If you only want to take pension cash with no income, then an alternative option may be better for your needs.

 

4) FIXED TERM ANNUITY or SHORT TERM ANNUITY: Fixed Term Annuities or Short Term Annuities will also give access to the pension cash. However unlike a lifetime annuity they do not provide an income for life. These provide the income for a specified term usually between 3 and 15 years. At the end of the term an amount of pension fund is made available this is called the ‘Guaranteed Maturity Amount’. With this fund at that time you must choose again how you would like to receive your pension income. You can choose to take your income from any of the above 3 options again at that time.

At the point of buying your Fixed Term Annuity you can choose to take the cash lump sum. It is possible to take no income from your Fixed Term Annuity, but this would then be set until the end of the term. Although this is more flexible than a lifetime annuity it is not as flexible as the flexi access drawdown option as the income element is fixed for the term selected.

 

Warning: Taking a pension early is likely to reduce your income at retirement. Taking a cash lump sum from your pension early is not suitable for everyone and should not be seen as an easy option for raising cash, this is because a pension is designed to provide you with benefits when you retire.

Useful numbers to contact, If the lump sum is required to repay debts:

National Debtline -0808 808 4000 www.nationaldebtline.co.uk

Consumer Credit Counselling: 0800 138 1111 www.ccs.co.uk

Citizens Advice www.citizensadvice.org.uk