Cash from pension
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 options on how to take cash from your pension.
There are a number of ways to take cash from your pension. In order to qualify for any of them you must be over the age of 55 and your pension fund must be from a UK source, that you are not already drawing from.
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 to understand your tax liability of choosing this option.
Uncrystallised fund pension lump sum (UFPLS)
This basically works by splitting your existing pension fund into many segments and then phasing in the rate at which you take the benefits. Each segment is always worth 25% tax free cash and balance as income or to buy an annuity; useful if you need to manage income and taxation.
Flexi access drawdown
A Pension Drawdown (sometimes called Income Drawdown, Income Withdrawal or Pension Release) is a pension plan that allows you to unlock the tax-free cash from your pension plans without committing to 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.
As 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pension fund has not been spent to buy an annuity, your pension fund remains intact (albeit without the amount you have withdrawn of course).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 that your pension fund can continue to be invested.
A pension drawdown is an alternative to an annuity and gives greater flexibility.
Fixed term annuity or Short term annuity?
These 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 the point of buying your Fixed/Short Term Annuity you can choose to take the Tax Free 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 or UFPLS options 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.
An 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 Tax Free Lump Sum, but you must also buy an income for life to go with it. If you only want to take pension cash with no income, then an alternative option may be better for your needs.
FOUR RETIREMENT OPTIONS
discover our services
We can provide a scheme review and audit as well as helping you to communicate the pension scheme.