Pension Release

By: EconomyWatch   Date: 30 September 2009

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 The recession of 2008-2009 took a heavy toll on people employed in various sectors. With rising debt levels globally and the credit crunch seriously hampering avenues of borrowing, individuals relied on alternative methods of lending and earning. One such alternative is pension release.

Pension release, sometimes known as pension unlocking, is an arrangement under which an individual tries to release funds from his/her pension account/fund earlier than the stipulated time. This applies to both Occupational Pension schemes and Personal Pension schemes. A typical example of pension release is funds withdrawal by Americans from their IRA.

In the UK, as in the world over, pension release means withdrawing money from a pension account prior to retirement. The eligibility for this procedure requires the individual to be at least 50 years old and have a UK pension plan.

By taking pension benefits earlier than expected, an individual will reduce the amount of money in the pension fund, and is entitled to an accordingly diminished sum on retirement. In the first year after having applied for a pension release, one can withdraw up to 25% of the total accumulated pension amount, which is virtually tax free.

Advantages of Pension Release

·         Pension release is an alternative source of income in times of unemployment or credit crisis.

·         A pension release scheme paves the way for sound financial planning by utilizing the maximum allowable tax free cash.

·         The balance which remains can be used for investing in different financial instruments or taking a monthly income.

·         It is a viable alternative to buying annuities, which are generally volatile in nature.

The Pension Release Workflow

An individual seeking a pension release can approach a pensions unlocking firm, which will contact the pension provider to gather all the required information. A pension advisor, appointed by the firm will contact the individual and present him/her a clear and concise view of the pension release options.

Additionally, the advisor will consider how different pension benefit schemes would be impacted. All provisions of ill health or an eventual death of the pension holder or his/her dependents are taken into account. The benefits are calculated and various tax options are explored.

As a best practice, it is advisable to conduct due diligence before withdrawing money from a pension account. The reduction in the amount affects retirement plans and other benefits. It is of paramount importance to weigh the pros and cons of a pension release and assess the implications.


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