Early Pension

Early pension release is the process of taking some of the benefits of your pension before your selected retirement date.  These benefits can include a tax free cash amount and/or an income from your pension fund/s.

To qualify for early pension release you must be at least aged 55 and hold a relevant UK pension. Your pension funds will also usually need to be over £10,000. However, you cannot take an early pension with your State Pension.

You will also not be entitled to take early pension release from a pension you have already taken benefits from.

After you take early pension release and have received the tax free cash lump sum you wish to take then you must decide to either reinvest the residual amount or take an income from it either by purchasing an annuity or through an alternative such as income drawdown.

An annuity is designed to provide an income for life, and once you purchase one you cannot subsequently alter the amount you take, stop taking it, or exchange it. It is therefore important for you to think carefully about when (if at all) you should purchase an annuity.

The annuity you may receive will be based on a variety of factors such as the current annuity rates, your age, your gender, what level of escalation you want it to increase by, the guaranteed period, any medical conditions and more.

If however, you prefer some flexibility in your income then taking an annuity may not be the best route, and instead an alternative such as income drawdown may be more appropriate.

Income drawdown allows you to take your early pension income directly from your pension fund,  up to a limit of 100% of your maximum GAD amount. This will then provide you an income directly from your pension fund which you can alter whenever you like, taking as little or as much as you need. However, if not properly managed this does mean it is possible to use up your entire pension fund before your need for income ends. This places an added risk on income drawdown that is not associated with an annuity, in return for the additional flexibility and your continuing to own your fund.

Note: Please note that releasing your pension benefits early could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances. The above is based on our understanding of current legislation and tax rules and are subject to change by the government. Tax reliefs referred to are those currently applying. Please note the value of investments can go down in value as well as up and you may get back less than you invest.