How early can you access your pension and how much of it can you withdraw? It’s well known that pensions can be complex and, sometimes, a little overwhelming. There are several options available for people who are considering taking an early pension at 55, so before you make any decisions, you need to be sure you’re taking the right course of action for your circumstances. Your pension choices will have a significant impact on your quality of life in the future, so it’s essential to get advice from a professional. To help you understand some of the most common options, here are some words of expert advice from Portafina.
Which Types of Pension Can You Take Early?
Personal, private, and many workplace pensions can be accessed when you reach the age of 55. However, you can only withdraw from a final salary scheme if you move it into a personal scheme which is often not recommended as you are giving up a guaranteed income for life. You cannot withdraw money early from government or civil service pensions.
What Are Your Pension Options at 55?
Depending on the type of pension scheme or schemes that you have, there is a variety of options for you at the age of 55. These possible options range from withdrawing all of your savings at once, taking some of your savings as a lump sum, drawing a regular income, buying an annuity from an insurance company or leaving the pension where it is to grow.
Everyone’s personal, professional, and financial circumstances are different, so your choice will be determined by your future life plans and priorities. In most scenarios (aside from rare circumstances like developing a critical illness) you cannot withdraw money from a pension before you are 55. Should you be told otherwise by an individual or a company, be aware that it may be a scam.
It’s very important to remember that taking money from your pension could leave you with reduced funds to live on in later life. It should therefore not be viewed as a quick fix when short on money or to buy something frivolous.
Total Savings Withdrawal
It is possible, with the right scheme, to withdraw all your money in one go, but in many cases, it is better to leave the funds invested for a few more years.
Pensions and Tax-free Cash
Many workplace and personal pensions allow you to withdraw up to 25% of your pension as a tax-free lump sum, but withdrawal limits will vary between schemes. If you choose to take a lump sum from a final salary pension, you may find your regular income payments will be reduced.
A pension release is when money is released from your pension early and is usually possible with private and workplace pensions. Final salary pensions need to be transferred to a private scheme before money can be released.
A pension drawdown enables you to turn your pension into a regular income with comes to you either in lump sums when requested or via regular scheduled payments.
Although it’s not as popular an option as it has been in previous years, some people choose to sell their pension to an insurance company in exchange for an annuity, i.e., a regular and guaranteed income they receive for the rest of their life.
Leave Your Pension Savings Invested
Many people choose to leave their pension savings invested where they are so that they have more money to withdraw when they are 60 or 65. If you choose to leave your pension as it is, you should be reviewing your pension pot on a regular basis to ensure it has been invested in the best possible way.
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