People have many reasons for wanting to explore the possibility of early pension release. Some are drawn to the idea because of unforeseen serious illness, resulting in little prospect of ever being in a position to draw their pension benefits. Others are placed in the situation of early pension release because of the death of a loved one prematurely, before their planned retirement date. Financial hardship and changing circumstances is often cited as a reason for seeking to release the proceeds of a pension fund. Outlined below are many of the situations in which release is sought from either making ongoing contributions, or from an entire pension arrangement.
Early Pension Release:
Death – as many people are unfortunately aware, death does lead to early pension release and the proceeds are paid to the deceased’s beneficiaries or in line with the deceased’s expression of wishes.
A change of plans such as redundancy can trigger earlier than expected pension release, especially when individuals previously had no expectation of stopping work prior to their normal retirement age (NRA).
The realisation that sufficient income can be generated working part time whilst being able to manage on a reduced pension can sometimes causes a lifestyle decision to retire early. This is an obvious case of early pension release, especially if the person previously planned on a retirement at age 65 years and now is deciding to retire at age 60 years.
The transition from earlier retirement, whilst continuing to work part time, to full retirement can often be aided by receiving the State Pension. One income replaces the other and despite having taken the initial pension early, standards of living are able to be maintained. Other top ups to pension income that have been saved for including the State Earnings Related Pension Scheme (SERPS) can also help to support these decisions.
Another way to achieve a similar and different result is by releasing the lump sum from the pension earlier than the income payments. The tax free lump sum can be used as a means of smoothing the income, by either living off the interest payments, reducing the capital over time, or a combination of both.
Early pension release can also be a release from large monthly, annual, or periodic employee pension contributions. Employees who are in control of their own finances and have elected to make personal pension contributions can be released from the commitment, often by simply deferring their standing order or direct debit mandate. Caution should be taken when considering such action because it will alter your pension payment when you come to take it. Seeking advice from a suitably qualified individual (Often G60 qualified) in this and any other pension related matter is to be encouraged.
Employers have recently sought to be released from the onerous pension contributions they were committed to making as part of their final salary (FS) pension arrangements. Many employers’ pension contributions have been significantly reducing because they have moved their pension schemes from being linked to final salary to being linked to defined contributions.
Despite all the circumstances described above the majority of people are drawn to the topic of pension release because of difficult financial circumstances and an immediate need to find money.