Withdrawing your pension as a lump sum may be tempting, especially if this will help to support your family and stabilise your finances in the immediate future. However, you need to make sure that taking your pension early is the right decision for your family and your personal circumstances.
1. Get a Workplace or Private Pension
If you want to take your pension early, workplace and private pensions are the only ones that will allow you to do this. Other pension types such as unfunded and final salary pensions do not let you take your pension as a lump sum. Although there is no way to withdraw an unfunded pension as a lump sum, if you have a final salary pension, you can forsake its benefits to take it at once through transferring your pension to a private pension scheme, which will allow you to access your retirement fund instantly.
2. Use a Financial Advisor
If you are unsure what the best course of action is for you and your family, you should speak to a financial advisor who can give you the expert perspective and advice that you need to make the right decision. However, you must make sure that any advisory service you use is FCA regulated. Portafina provides trusted financial advisory services for families when considering what to do with their pension and can help to give you guidance based on your individual situation.
3. Have a Secondary Source of Income
However, taking your pension now can put a significant financial drain on your future if you do not have the right resources to cover your retirement. In these cases, you should make sure that you have a secondary source of income on which you can rely, such as a business or another pension scheme, and that you can budget correctly in order to live off a private pension if this is not the case.
4. Reduce Your Pension Tax
Although taking your pension now can boot your income immediately, you may actually be receiving less money in the long run. This is because only 25% of your pension pot is tax-free, and any more than this means that you exceed your annual income. If you take out your pension as a lump sum, this can give you large tax bills that increase alongside the amount that you take out. If you take out your pension over a number of years, however, this can reduce the amount of tax you will be paying.
5. Wait until You are 55
Although you may be desperate for the financial security of your pension now, most pension schemes will not give you your money until you are over the age of 55, unless in extreme medical circumstances. If you have already taken out your tax-free money as a lump sum, the rest will be invested, and you will be able to access this at any time so long as you are over this age limit.