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We recently looked at the idea of retiring early and, with that, examined the different elements involved in withdrawing your pension. The basic theme of withdrawing a pension is that you need to meet certain criteria, specifically reach certain ages; the current retirement age is 65 however for other schemes, workplace pensions for example, you may be able to access funds earlier but with some caveats.For the majority of workplace pensions, you can begin to access the funds after your 55th birthday. If you choose to withdraw more than 25% of your total pot in one lump sum, you will have to pay tax on it - if you take 25% or less, you can withdraw it tax free. The main concern you should have when withdrawing your pension is the long-term effect it may have. Unless you are planning on supplementing your income during your retirement, the pot will only decrease over time and money you take from it in your 50s won’t be there in your 80s. For the majority of non-state funded pensions, the rule of not accessing funds before 55 is not against the law. While you can access these funds before you are 55 if you absolutely have to, you are strongly advised not to due to the significant charges you may face, the amount of tax that you will have to pay and the very real risk that when it comes to your retirement age, you will have an empty pot. The pension regulation is there for your own protection, to help you avoid getting into financial trouble later on. An incentive here is that some tax perks can be received if there have been no withdrawals of your pension before you were 55. There is an exception to the rule, however. If you are forced to retire due to poor health or if you are under 55 and have been given less than a year to live, you are likely to be entitled to withdraw your entire pension without incurring any tax charges. The idea of retiring early is appealing to just about everyone. Living life on your terms, being able to spend time with your family, work on your own projects, there are so many benefits that come with early retirement but it is, of course, something that comes with that asterisk of the limited source of income. Buying an annuity to receive your pension as if it were your monthly income can go someway to help you pace your pension withdrawal but even then, starting this the second you can access it can lead to problems in the long term. As such, for any questions regarding your pension and accessing it early, you should contact your pension provider and discuss with them. If your plan to access your pension was a result of you wanting to free up funds in your later years, there are alternatives that pose fewer risks and offer you the financial security later on. Selling your property in order to downsize, for example, is an option that not only frees up funds quickly but offers many money-saving opportunities further down the line as the smaller living space, usually, means a substantial decrease in upkeep costs. If you would like to discuss downsizing or selling your home quickly in order to free up funds, contact Spring today at [email protected].
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