4 ways accessing your pension early can help your finances
Financial planning isn’t easy. If you are in need of money you may have a dilemma of where to get it – potentially considering a loan, which will mean paying back more than you borrowed thanks to the interest.
Another option is accessing your pension early to relieve the financial burden.
At first glance this may not seem like a brilliant idea. You may be wondering how taking money out of a fund can be helpful, and with so many scammers trying to part people from their hard-saved money it can be nerve-wracking just entertaining the idea. It’s also certainly true that pension release is not right for everyone and very much depends on personal circumstances.
Yet it’s also true that it can be a beneficial option, and there are simple ways to identify scammers from legitimate financial advisers.
If you are at least 55 years of age with a qualifying UK pension then you could release up to a quarter of it, tax free. Suppose you had a private or company pension worth £200,000 – you could remove £50,000 as tax-free cash.
That could make a significant difference to financial situations, and here are four scenarios in which pension release can be useful:
To clear the mortgage
As the largest debt a person is likely to ever have, a mortgage payment is usually the biggest monthly expense. With income usually significantly smaller in retirement, mortgage payments can be particularly painful.
Using pension release to reduce or clear it can help your income stretch further. This money can either be put back into the pension to help it grow before you retire, or be used to improve your financial comfort by having more disposable money.
To tackle debts
No one likes having debt. It causes stress and leaves you with less money, and can often mean you pay back more than you borrowed. Whether it’s a credit card or car payment, the sooner you clear a debt that accrues interest the more money you will save.
In appropriate circumstances, pension release can be a sensible way to tackle those debts, although careful consideration is required to make sure your situation qualifies as appropriate and you may wish to consider seeking debt counselling or loan restructuring advice first.
To pay for your child’s wedding
Sometimes we have enough money to pay for our outgoings, possibly with a little left over for savings. Day-to-day life is covered, but those unexpected, larger bills can really cause us problems.
One such situation is weddings – they are expensive and the parents of the happy couple are often expected to chip in, often quite substantially.
So what are your options when you need to find thousands of pounds but don’t have it burning a hole in your pocket?
If you’ve overpaid your mortgage then it is possible the lender will let you take some of the money back. Failing that, you may think that your only option is debt, either a credit card or loan. This is likely to have an interest rate, meaning you will be paying back much more than you borrowed.
Accessing your pension early offers a different solution. It won’t reduce the amount of equity you own in your home, nor is it something you have to pay back. It will, though, reduce the amount of money in your pension, so you’ll need to take regulated advice to make sure it’s appropriate for you.
To retire early and free up time
It may seem counterintuitive to remove money from your retirement fund in order to retire earlier, but what if the only reason you were still working was to pay something off?
Accessing your pension early could allow you to rid yourself of that burden, and either live off the remainder or, if it is not big enough, semi-retire so you have more time to do what you want with your time.
Have you used your pension to relieve a financial situation? Tell us in the comments below.
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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section: https://www.portafina.co.uk/whats-new
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