Pension Release is the process of taking a Tax-Free cash sum from your UK pension to spend how you wish.
Traditional pensions have been underperforming in the last few years, with all UK pension funds having declared a shortfall because they are invested in stocks, bonds, trusts and funds. UK Pension funds are now considered a toxic debt with insufficient money to meet their pension liability. Falls in stock markets mean that many funds are worth a quarter less than two years ago – despite a recent share price rally.
If your pension fund(s) are still invested in one of these old-style traditional pension funds and have been performing badly, now might be a good time to consider moving to a different investment vehicle such as a Self Invested Pension Plan (SIPP). And in many circumstances, moving your pension-fund can also hold the key to releasing part of your fund and releasing cash tax-free from your pension.
You may consider releasing money for many reasons, such as;
- for further investment elsewhere
- to clear existing debt
- as a debt consolidation program
- as an alternative to taking a loan
- to make a beneficial financial settlement
- to clear a mortgage or other loan
For example - in certain circumstances, another loan is the last thing you want. Furthermore, if you have financial difficulties then it's not uncommon for loan companies to take advantage, with higher rates or security demands.
So as part of a sensible financial-planning exercise, releasing cash from your pension could be a real option for you. Especially if you have been paying into a pension scheme for more than five years.
Pros and Cons.
Transferring your fund will almost certainly incur setup fees (which are normally taken from the value of the fund when transferred, not as upfront charges), and it is not uncommon for pension companies to try and discourage investors from leaving their scheme by fining from or withdrawing accrued bonus payments from the final value of the fund.
Although in such cases, for most investors loss of bonuses counts as little disincentive when they have already seen the value of their pension fund decimated, and look set to see its value plummet even further when they can just move ahead and get their fund in a better performing pension investment vehicle, such as a SIPP offering guaranteed yearly returns to get their pension fund working for them again. Not to mention the opportunity of getting some of their fund released in the process as an added bonus.
How Long Does it Take?
The first step is obtaining a transfer value from your existing pension provider. This is usually a quick and simple process in just sending your pension company the required form and waiting for them to reply, or can be done on your behalf by your advisor with a signed Letter Of Authority.
If however once having obtained the transfer value you decide to go ahead and begin the process of transferring the fund away from your current provider, then depending on who your provider is the transfer process can take anywhere between 3-6 months for completion.
So it should be noted that Pension Release may not necessarily be a 'quick-fix' to a short-term financial problem.
Is it Right for Me?
As with many retirement planning options, Pension Release is only likely to be suitable in particular circumstances, I therefore highly recommended you seek assistance from a pensions expert in order to fully understand the options available to you.
Pension Release - How to get tax-free cash from your UK pension fund
