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Tax-Free Lump Sums Through Pension Release

Posted on | May 1, 2012 | Comments Off on Tax-Free Lump Sums Through Pension Release

Lately, the UK pensions system has come under scrutiny because of the way that investors’ savings are locked away until they reach retirement. This year, for the first time since Individual Savings Accounts (ISAs) were started, they attracted more investors and more money than pension savings vehicles. Experts believe that this is because they offer a simple way to save that doesn’t ‘lock away’ savings until the age of 65.

However, through a process called pension release, there is a way for pension savers to unlock some of their hard-earned money before they retire. Anyone considering pension release must be at least 55 years old, and the pension that they are looking to unlock must not already be actively paying for their retirement.

Why would I undergo pension release?

Though pension release gives pension savers a way to unlock up to 25% of their pension completely tax-free, it should not be seen as a ‘quick fix’ for unforeseen financial problems. Most people choose to unlock funds from their pensions because they can see no other way to pay for important financial needs, such as a mortgage, medical expenses, or debt consolidation.

In general, no one should seek out the pension release process just to have extra money for leisure, travel, or any other unnecessary expenses. This is because taking money from your pension now will almost certainly leave you with less money to live in comfort throughout retirement. While pension saving may be losing their lustre to most savers because the money is hard to access, this can actually be a blessing in disguise; it is very difficult to replace the benefits that pensions can provide over the long-term.

Exhausting other options

 

Still, it is a relief for most savers to know that they do have a way to access their pension before retirement. When all of the other avenues are exhausted, and it’s not possible to get money from re-mortgaging, or using other ‘rainy day’ savings funds, pension release can give you access to money that you have saved all of your life.

If you are interested in pension release but are not sure which pension providers hold your pension, the government offers a free online tracking tool through their direct.gov.uk website. This could also help if you are not sure how much you have saved in your pension, as having too little savings could bar you from being a good candidate for pension release. In general, it’s recommended that people have at least £15,000 in their pensions before trying to unlock any of it, but it’s better to have more so that there will still be enough left to fund your retirement.

Paula de Maria from www.pensioncalculator.org writes about pension release and other news regarding pension savings


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