Generally, UK pension holders contribute to their personal pension fund or old Company pension fund for the main purpose of having lump sum cash or income when they finally retire. Whilst this may be the primary purpose of pension funds, UK pension holders may find the need to draw from their pension before their retirement age and it is under this condition when pension release is considered.
UK pension holders are well advised to keep their old company pension fund or personal pension fund untouched until they retire at age 60 or 65 so that they get the maximum amount of earnings or returns from their investment in such pension funds. However, there will be some specific instances where you may consider pension release and draw a portion or segment of the cash sum tax free even before your retire.
UK personal pension funds and old company pension funds can be used as source of extra cash or income prior to retirement age of either 60 or 65 through pension release. As such, UK pension holders should consider their pension as some form of savings fund which can be used to address specific liquidity problems.
You can seriously consider pension release if you intend to settle some existing loans by using a portion of your personal pension or old Company pension. However, your final decision to take out such tax free lump sum cash or income through pension release will be dependent on the potential income that could have been generated if such funds remain intact and stay as part of your pension fund.
UK pension holders should carefully weigh the cost-implications of their decision to tap part of their pension funds through early pension release and settle or repay their loans. In situations where the interest of such existing loans are higher than the potential income that can be generated if the same funds remain invested then it doesn’t require the expertise of an accountant or financial analyst for you to know that you are better off opting for pension release to generate the funds needed to settle such loans.
UK pension holders must always look at the potential yield of their investments, and these include their personal pension funds or old company pension funds, when it comes to financial planning. For instance, if you are holding pension funds with guaranteed annuity rate, then it is but logical that you base your decision whether to opt for pension release or not on the expected income that you can generate from such investment.
