5 ways pension release could benefit you
Pension release is a generous tax feature that enables you to remove up to 25% of your fund as a tax-free cash lump sum. As it means reducing the size of your retirement fund it is not suitable for everyone and if you are in debt you may wish to consider seeking debt counselling or loan restructuring advice, but when it is an appropriate option it can be a significant benefit. Here are five such scenarios:
The debt trap can be a vicious cycle – it makes it difficult to save money by being an expense, and if you are unable to increase your income it can be stressful trying to repay. Payday loans can be tempting but you will end up owing even more money, as you will have borrowed your entire existing debt at a very high interest rate. Pension release is your own money, so it does not need to be repaid. By tackling debt, including car financing, your disposable income should increase and you may be able to afford to pay money back into your pension to help it regrow before your retirement.
Prevention is better than cure, and if you know that something is soon to happen that you will struggle to pay for without some form of loan or credit, releasing money from your pension may be a more prudent decision. It should be a worthwhile expenditure though – it shouldn’t be considered a way to buy a huge smart TV.
Clear the mortgage
Your mortgage is likely to be the largest debt you ever have, and as you enter retirement your income will probably be lower than it was while you were still working. Such a large expense can really hit your overall finances, and a chunk of each payment will be interest. Sensible financial planning can take note of the fact that reducing your overall outgoings can make your money go further, ultimately offering you greater security.
Again acknowledging that you will probably have a lower income in retirement than before, you should consider looking for things that are likely to need fixing in the future. If you know, for example, that the roof will need repairing in a few years, taking care of it early will offer peace of mind – and it may reduce the cost because you will have fixed it before it got any worse. Repairs and maintenance can also increase the value of a property, which will be beneficial if you later decide to opt for equity release or downsize.
Helping family members
The banks of Mum & Dad and Gran & Grandad are popular ones, and there is always a need for a withdrawal. Whether it’s help with a house deposit, tuition fees or a wedding, helping family is a popular reason for releasing money from a pension.
With appropriate advice, pension release can be a useful tool that can help put you on the right track for a secure retirement. Nonetheless, it’s important to remember that your pension has been built up over many years to provide for your retirement, so you should have a good reason to access it early.
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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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