You have worked hard to earn your pension, so you have every right to use it any way you wish. Despite that, you still need to be cautious because you only have one chance to make the right decision—especially if you are considering cashing in your pension in the UK. New rules were introduced in April 2015, stating that when you reach 55 years of age, you can already take your entire pension pot in cash in one go. However, there are still things you must consider before you proceed. Proceeding without caution could mean running out of money upon retirement, and dealing with hefty taxes. Here are points to think about:
• How it works?
When cashing in your pension in the UK, it means that you are closing the entire pension pot so you can withdraw everything in it as cash. The first quarter is tax-free, and the remaining three-quarters will involve taxes on the rest of your income.
• You cannot change your mind.
Once you have cashed in your pension, you cannot go back. It will not provide regular income, and 75 percent of the amount you will get is taxable income, so the tax rate is likely to increase when money is added to other income. For most people, it may be tax efficient to consider other options when thinking of taking out your pension.
• What you intend to do with the money?
You might think that cashing in your pension in the UK may be helpful in clearing your debts, buying a big-ticket item, or spending for a holiday you have always wanted to experience. However, this may only result in a bigger tax bill and reduced money for your retirement.
• Your need for a secure retirement.
You might not be able to enjoy the security of regular income during your retirement if you cash in your pension now. Make sure that you are comfortable with this.
When in doubt, consider consulting with financial and pension transfer specialists who can help you understand what to expect. They can also help you make informed decisions for making the process go smoothly and less stressful for you.
About The Author -
This article is written by Isabel Davis on behalf of Prism Xpat. Prism Xpat is a leading International Financial Advisory and Pension Transfer Specialists based in London. They transfer UK final salary pension funds for people based in the UK, as well as people who have emigrated from the UK to live abroad (mainly Australia, New Zealand and into Europe). As a leading UK advisor to expats and emigrants Down-under and globally, they work with their customers to optimise the client’s position and minimise the hassle. With offices both in the UK, and client’s new home, their advisors work together globally to give people the best advice with the least fuss.