Pension Release

If you are over 55 and hold a pension scheme then you may be entitled to pension release which is the process of accessing your pension benefits before you come to retire. Although pensions are designed to be utilised solely for your retirement income there are situations in which you may need to access the cash within them earlier than expected and this is where pension release comes in.

To qualify for pension release you will usually require a total minimum pension fund of around £10,000 amongst all your pension schemes. Pension release doesn’t depend on whether the pension scheme is personal or occupational but you cannot take pension release with State Pensions, with some occupational defined benefit schemes that you are still an active member of or with pensions that you have already taken your benefits from.

If you do take pension release however, you will usually be entitled to receive up to 25% of your pension funds as a tax free cash lump sum (this amount may vary depending on the pension funds you hold).

The residual amount from the pension release will then be crystallised (meaning further tax free benefits may not be taken from it) and then either re-invested or used to purchase an annuity. In many circumstances most individuals who take pension release will re-invest the residual amount in a new pension to allow it to grow as they haven’t reached their retirement age yet. However, if you have reached 55 and taken pension release then you may also start taking an income from your pension in addition to the pension release lump sum you have taken, either through income drawdown or by purchasing an annuity.

Note: Pension release and the releasing of your pension benefits 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.