Cash Pension

 

 

Pensions are a part of an individual’s long term and short term financial goals. People typically wait for their retirement age to reap the benefits of pension and lead a financially secure life. Sometimes, however, people withdraw some money from their pension funds before the retirement age. This may be due to various factors like unemployment, illness or care giving. Such arrangements are known as cash pension plans or cashing in pensions.[br]

 

Cash pensions normally give the pension plan member the option to release part of their pension amount as a tax free lump sum. The rest of the fund is taxable and earned income for retirement. Cashing in pensions prior to an individual’s pensionable age would usually the eventual retirement income.

 

Cash Pension Eligibility

Cash pensions are sometimes known as pension release, whether it is a personal pension or a company contributed pension scheme. If one is over 50 years and is covered under a pension scheme, he/she can release a part of the income, originally set for withdrawal at the age of 60 or 65.

 

However, from April 2010, the minimum age requirement will change to 55 for both men and women to unlock the pension early, under any retirement plan.[br]

 

Cash Pension Methods

The cash pension amount withdrawal depends on the amount of money one has in his/her pension fund. It also depends on the choice of taking a cash lump sum or an income, or both. Cashing in pensions is broadly classified as:

·        Cash lump sum: While one is not entitled to withdraw more than 25% of the pension fund tax free, there are ways that he/she can increase the immediate total cash sum received by drawing a one-off annual payment without having to continue with an ongoing regular income. This option wasn’t available before April 2006 and may still not be possible with one’s existing pension.

·        Income: The income one earns from his/her pension will depend on a number of factors, such as age, health and death benefits that are included. One has a choice of buying an annuity or keeping the pension fund invested and drawing an income each year. When one wants to take an income from the pension fund, he/she needn’t it from the pension plan provider. In other words, one may accumulate a pension for sometime, but when he/she decides to derive income from it, he/she can shop around for the best deal. All pension plans include an Open Market Option. This is a clause which gives an individual the right to have his/her income paid by a different provider.