Should I Cash In My Pension?
Nowadays, when pension planning it's important to know that you can take as much from your pension pot as you want once you reach the age of 55. UK government intensity increases to age 57 after 2027. Any withdrawal before that will likely result in harsh penalties.
For making any decision about whether you should cash in your pension, it's important to get pension advice in advance. Especially if you're considering cashing in your pension savings before the age of 55, as it's highly likely you'll end up paying a 55% tax penalty.
From a legal perspective there are some circumstances under which you can access your pension before you reach 55, such as terminal illness or if you worked in a specific occupation such as a jockey or a professional footballer. Policemen, firefighters and people who served in the armed forces may also be eligible to access their pension benefits before the age of 55.
If you have any questions it's important to seek professional pension advice as they can help you with pension reviews, pension transfers and pension planning. They can talk to your pension provider to assess your eligibility
Making a cash withdrawal from a pension pot before they reach 55, if you are not eligible is likely to be resulting a 55% tax bill as it'll be viewed as an unauthorized payment. Pleading ignorance, offering to pay the money back or just saying you have spent the money it's not going to matter. Many companies also charge huge fees, sometimes up to 30%, to negotiate an early pension cash outs on your behalf.
Cashing in old pensions when you leave a job
Even if you've left an old employer, the money you've paid into a pension is yours and once you reach the age of 55 you can cash this in. You can take it and instalments or as a lump sum.
However, under the age of 55 unless you want to be liable for a 55% tax payment you should first discuss transfer transfers with a pension advisor, they can help you choose the best and most sensible way to move it to a new provider.
It's also important to understand that when you leave one job and you stop paying into a pension scheme your pension will most likely be frozen, meaning all fees will be withdrawn from remaining balance and not any additional funds being paid into it.
This is why it's important to do periodic pension reviews and to discuss the option of pension transfers, with a financial advisor. Keeping all your pension funds in one place gives you a much wider choice of investment and makes managing your pension pot easier.
Another important factor to consider when deciding should I cash in my pension especially if you're dealing with an old pension is that early withdrawals could dramatically reduce the amount you can pay into future pensions. Seeking pension advice will help you understand the tax ramifications and pension freedoms that are available to you if you decide to tap into a pension pot for cash.
Cashing in a private pension?
When you're working with a private pension fund it may be possible to cash it in depending on your age. Talk to your pension advisor and they'll be able to discuss it with your provider. However the vast majority of providers will restrict any withdrawals before the age of 55, regardless of your pension pump size.
The terms and conditions of your pension will never change once you reach 55. You'll still be able to take 25% tax-free as a cash lump sum or in instalments. However proper pension planning will be needed if you want to get your money paid in instalments as many companies will charge you for every single withdrawal. Others place limits on how much you can withdraw within a given tax year.
Deciding what I want to do with the remaining 75% is also important. You can withdraw the total amount and pay the tax bill. But most pension advisor will tell you to leave it invested.
Pick up the phone and talk to an expert in pension advice and read the day and they will discuss all the options that are available to you. Unless you meet a specific criteria, cashing in your pension before the age of 55 is not something you should consider.
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