Taking Cash from your Plan
Since the rules have changed, increasing numbers of people may be having to dip into their pension funds to access some cash for their financial needs before they actually retire.
Whilst this is not ideal because it will normally mean there is less in the pot for the future, there are certain situations where it can make financial sense, or perhaps be the only viable option.
Indeed with the current economic situation, and the scarcity of other sources of credit, this is undoubtedly going to be an area that many people may find themselves turning to.
The way it works is that if you are over 50 (increasing to 55 from April 2010), and providing there is an entitlement to a cash sum from the plan, then you could consider converting your pension plan into one that allows you to take some cash out but leave the pension until a later date. It isn’t a loan or anything that has to be paid back, you are simply taking the money early. Therefore, if you are between 49 and 54 action needs to be taken now.
Generally you would expect over time pension funds to increase so by having your money early it means there is less left for your retirement in the future.
An example of when it might make sense would be if you were paying very high rates of interest on a debt such as a credit card or a store card, where the amount of interest is far more than you would reasonably expect the pension fund to grow by. You could then pay the debt off and instead of paying interest to the credit card companies, you could instead invest that saving back into your pension plan (and get tax relief into the bargain), for your future benefit not theirs!
These plans are normally very flexible and the rest of your pension fund will remain invested until you need to start taking an income. Indeed you don’t have to take all the cash sum you are entitled to (normally 25% of the fund). Just take what you need and let the rest grow for later use.
Any decision involving your pension fund, and therefore your income for the rest of your life, is going to be important, and needs very careful exploration. Our specially trained pension advisers can help you decide whether this is the right option for you.
© 2009 Ashwood Law LLP
Ashwood Law LLP, Ashwood Law House, Newton Road, Heather, Leicestershire LE67 2RD
Email: advice@ashwoodlaw.co.uk
| Please view our full description of risk warnings and disclaimers
Callback request:
Ashwood Law LLP,
Ashwood Law House,
Newton Road, Heather,
Leicestershire LE67 2RD
