Pension Unlocking FAQs

Q. How does it work?

A. In order to release the money from your existing pension it often has to be transferred into a new scheme. Once the money is transferred to the new pension provider the amount of tax free cash is calculated and paid to you. The remaining fund is then used to provide you with an income or remains invested until retirement.

Q. Am I eligible?

A. If you are over 50 and have a UK pension, then you could be eligible to receive cash from your pension. However, in 2010 new legislation will change the minimum age to 55.

Q. How much can I get?

A. Every individual has unique circumstances and therefore it is impossible to give an accurate answer to this question without first examining your personal situation as well as the size of your existing fund.

The maximum tax free cash is normally up to 25% of your fund. However, it would always be recommended that you take as little as possible to meet your requirements, to ensure that your future income from this pension is not reduced too greatly.

Q. Is this a loan?

A. The money in your pension is yours, so this is not a loan and there are no interest payments to make.

Q. Do I have to retire to receive a lump sum?

A. No, you can take tax free cash and/or an income now and continue to work although we will not be able to release funds from your current employer's pension if you are still eligible to make contributions.

Q. What happens if I die?

A. If you die before any transfer takes place, the rules of your current pension scheme will still apply. If a transfer takes place then any death benefits payable will depend on the rules of the new pension set up. We will supply full details at the time.

Q. Do I have to pay tax on the money?

A. The lump sum payment is tax free. However any income you receive is viewed as part of your regular income by the HM Revenue and Customs, which means that you may have to pay income tax on it depending on your personal circumstances. However tax rules may change in the future.

Q. Can I continue to pay monthly premiums to the policy?

A. Once you have taken a tax free lump sum you cant continue to pay premiums to the policy. However, you could start paying premiums to a new policy although there are rules in place to prevent people ‘recycling’ pension monies. We will advise further within the written report.

Q. Can I continue to work whilst taking early benefits?

A. Yes, you can draw on your pensions once you reach 50 and continue to work. HMRC will include any pension payments you receive as part of your income when working out how much tax you pay. This is normal and will happen whether you access your pension now or later.

Q. Can I sell my pension?

A. UK law prevents you from selling a pension fund. Pension Unlocking is simply a case of you taking money out of a fund that is already yours.

Q. How much will it Cost?

A. There are no charges for the initial investigations.

We will investigate your pensions and provide you with a written report which sets out our recommendations. In the report we will provide you with a quotation detailing all the costs. For example your pension company may deduct monies as a penalty for you taking the funds now. Any pension company recommended has setting up charges that would be deducted, out of which they would pay our fees by way of commission. You may prefer to pay us a fee directly but this can be agreed before we carry out any chargeable work.

Pension schemes can be complicated and have different sets of rules and regulations therefore the amount of work we have to do varies for each person. Sometimes we need to charge an amount in addition to any payment we receive from the pension company. This will be confirmed in writing before you make any decisions.

Q. What’s the Catch?

A. Clearly what you take from your pension fund now, will reduce what you have available when you choose to retire. You should always consider other ways of raising cash before taking money from your pension. Typically these options would cover things like Mortgages and Secured or Unsecured Loans which could be re paid well before your retirement age and have a lesser affect on your retirement income.

It is important that you fully understand the advice you will receive. In many cases, pension release is not a recommended action to take and you must make sure you understand the consequences should you choose to go ahead.