Many people aren’t aware that they don’t necessarily have to wait until they’re in their 60s and retired to access their pension fund. While it’s not the right choice for everyone, lots of people have the option to use their pension as income from the age of 55. Here Portafina explains a few of the options to consider if you’re thinking about putting your pension to work a little early.
Before settling on any course of action with your pension, it’s essential that you consult with a financial expert; they will be able to assess your savings and investments and recommend the best action for your future plans. Taking money from a pension fund at any stage will reduce how much you have to live on in the future, so it’s a very important decision.
Who Can Take an Early Pension?
People who have private or personal pension schemes, as well as some workplace schemes, have the opportunity to take money from their fund once they reach the age of 55. It’s very rare to be able to take a pension any earlier, but there are instances when this happens. For example, if a person is critically ill, they may be able to access their pension earlier. Final salary pensions need to be transferred into personal pensions before money can be withdrawn and it’s not possible to take money from a civil service or government pension.
However, those people with private and personal pensions who are aged 55 or over have several options. The first and most popular option is to leave the pension as it is. If the funds have been invested wisely, you could see significant growth in your savings if you leave the pot until you are 60 or 65. Make sure you regularly review your pension to ensure your savings are being well invested.
Turning a Pension Into Regular Income
- Pension Drawdowns: When you enter a pension drawdown, you will be able to take income from your personal pension fund. You can choose to do this in lump sums as and when you need the money, or you can arrange the funds to be released to you as regular payments.
- Annuities: Insurance companies will buy your pension from you, and in return, you will receive a guaranteed and regular income for the rest of your life. This offers a level of security which is attractive to many but annuities are not very flexible and have decreased in popularity over the last decade due to falling rates.
How Else Can You Take an Early Pension?
- Pension Release: You can take money from a personal or private pension and lots of workplace schemes via a pension release. To withdraw money from a final salary pension, you will need to move it into a personal pension first, which may mean giving up your guaranteed income.
- Tax-free Cash Withdrawal: Many personal and workplace schemes enable you to withdraw a specific amount of money, which is tax-free. This is usually up to 25% of the fund’s value, but if you have a final salary pension, you need to consider that the amount you take could impact the guaranteed income you receive.
- Withdrawing the Whole Pension: Some schemes give you the option to take all of your savings at once when you are 55.