Best Uses of Pension Release
As a general rule, UK citizens receive lump sum cash from their pension fund which is tax exempt when they retire. You have to understand that this market referred to as “at market” is not the concern of pension release. This financial option is designed for those who may find the need for some funds before their retirement age and opt to take lump sum cash or income from their personal pension fund or old Company pension fund before they retire.
Under normal circumstances, it is ideal for UK pension holders to keep their personal pension fund or old company pension fund intact so that they can receive the maximum lump sum amount or income when they finally retire. However, there are several pitfalls that we have to be aware of. Here are some of the important reasons why you should consider tax free cash or recurring income through pension release.
UK pension holders may apply for a pension release if there is an urgent need for some extra cash. Thus, you must always look at personal pension fund or old company pension fund as a form of cash savings which you can draw funds from in times of dire need for cash. This is an essential component of sound financial planning.
UK pension holders must always consider their personal pension funds or old company pension funds as a potential source of cash intended for the repayment of existing loans. You must carefully weigh your options when it comes to the use of pension release for the purpose of repaying existing loans. Suffice it to say, you need to establish if such option is cost effective or not.
The reason for opting for pension release to settle or pay off existing loans is pretty obvious. If, for instance, your savings fund is giving you a margin of only about 4% while the interest of your loan is say 8% then it is pretty clear that you are better off paying your loans using part of your pension funds through pension release.
That being said, UK pension holders must be aware of the fact that pension release is not an ideal option if you have a pension fund with guaranteed annuity rate. In instances where the yield is above the current market rate then it is safe to presume that you are better off if you leave your pension funds intact until you reach your retirement age.