Why would anyone consider Early Pension Release?

Early Pension Release or Pension Unlocking can only happen to individuals who are aged 55 or over and have a UK pension they are not currently paying into or receiving; it doesn’t apply to The State Pension.

You can usually release up to 25% of the pension fund value as a Tax Free Cash Lump Sum (known as Pension Commencement Lump Sum). The balance of the pension fund left over MUST be used to provide an income although this doesn’t have to be taken at the same time as the lump sum; it can be taken at a later date.

It is important not to confuse this type of Pension Release with Pension Liberation, which is completely different.

Companies offering Pension Liberation usually tell you it is possible to release your pension BEFORE the age of 55 and that the entire fund can be taken as a Tax Free cash sum. In the words of The Financial Conduct Authority (formerly known as The FSA) “There is a high chance these are scams trying to con you out of your money”.

Early Pension Release or Pension Unlocking, as opposed to Pension Liberation, is completely legitimate and will be conducted by firms that are Authorised and Regulated by The Financial Conduct Authority and ones that use only HMRC approved products.

So, getting back to the question as to why anyone would consider Early Pension Release?

In most cases it is simply because an individual has a financial problem, which they are unable to solve any other way apart from accessing their pension early. If they have savings or some other way of raising money, such as a loan or borrowing it from a family member or friend, then they should consider these options first. However, these options may not be feasible or even possible and there are some circumstances when pension release maybe more suitable, for example, the only loan they can get is being charged at 15% interest but the equivalent loss from their pension is 10%.

Having said that, it is more likely that the losses from taking a pension early are going to be greater than the cost of an alternative solution.

The single most important thing to take note of is that anyone considering Early Pension Release should take advice from a reputable company who specialises in advising on this type of business.