How Much Can I Release from my Pension?

You can usually release up to 25% of your pension fund Tax Free; however, there are ways in which you can release a little more, although the extra sum could be taxed. Income can be taken immediately or left to a later date and will be taxed as earned income.

You don't have to release the maximum amount of cash; indeed, if you don't need to you shouldn't. However; if you do, the rest of your pension fund must be used to provide an ongoing income. You can decide to take this income immediately or you could defer taking it by simply leaving it in your pension fund to take another time.

From April 2015, subject to legislation being passed, if you have a Defined Contribution (sometimes called Money Purchase, such as a Personal Pension) plan, you will be able to take 100% of your pension pot as cash. 25% will still be tax free but the rest would be subject to income tax depending upon your individual circumstances and may be subject to change in the future. In addition, if you take 100% as cash there will be nothing left for future pension income in retirement.

Taking just a cash sum by itself but deferring taking the income was not an option before April 2006 and with a lot of existing pension contracts it's still not allowed. However; there is a way you can achieve this even if your current plan doesn't allow it.

One advantage of deferring taking the income means that this part of your pension fund remains invested. This could result in a bigger pension (but see note above about April 2015) when you eventually choose to take it, although if investments perform badly you could end up with less. Because of these risks it's not an option that is suitable for everyone.

Whether you decide to release income from your pension now via Pension Release or Pension Unlocking or defer taking it until some point in the future, you'll also have a choice about how your income is paid. And after April 2015 you may be able to take the rest of your pension pot as a taxable cash sum (see above).

All these choices and options can seem complicated and confusing and it's important to make sure you make the right decisions. You can find out more about the April 2015 changes on our Budget Update page.

One thing you can be sure of is that Grove will be able to advise you which option best suits your needs and circumstances, whilst pointing out both the disadvantages and risks along with the advantages and benefits.

If you want to find out more about your pension(s) then complete the "Get Started" form now.

There is no obligation on your part and no cost just to find out your options.

What advantage is there to unlocking less than the maximum cash sum?

You can take less than the maximum cash sum allowed, even if this option, if not taking income, isn't offered to you by your existing pension provider.

This is very useful for those people who don't need to release the whole amount all in one go. For example: you may have a need for a specific cash sum, which is less than the maximum you could take.

By only taking what you need it has the advantage of leaving more money invested in your pension. This means more should be available for you at a later date, although the value of your fund can go down as well as up.

You do not lose your entitlement to the balance of what you didn't take. This balance can be taken when you retire or even sooner if you have a change in circumstances and need it.

Again, there are both advantages and disadvantages with this option so it's important to make sure you are aware and understand both.

What if I only want income?

It's possible to take just income without a cash sum and there are a number of ways you can do this.

One option is to buy an annuity, which is simply handing over your pension fund to an insurance company and them promising to pay you back a regular income for the rest of your life.

The annuity market is very competitive and the rates differ between companies. It's possible to substantially increase your pension income by purchasing your annuity from the company with the best rates, which means you get the biggest income. This is called "Exercising the Open Market Option" and it usually costs nothing, with the exception of an adviser's fee or commission, to take advantage of this option. There are many different ways an annuity can be paid to you, so it's important to make sure you get the right one and at the best possible rate. You can also take advantage of enhanced rates if you are a smoker or in ill health, which basically means you get a bigger income if you smoke or your health is such that it could affect how long you live.

As an alternative to buying an annuity it may suit you better to leave your pension fund invested and simply draw an income directly from it. This way you don't have to hand over all your money to an insurance company in exchange for an annuity. However; there are risks with this that you'll need to be made aware of and understand.

Whichever option you choose it's always a matter of making sure you get the one that best suits you both now and in the future and that you are fully aware of the disadvantages as well as the advantages.

If this is something that interests you then just complete the simple "Get Started" form now.

There is no obligation on your part and no cost just to find out your options.

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This service only applies to pensions in the UK. Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash. To find out if you qualify please contact us.

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