How much pension money can you release?

Releasing money from your pension fund allows you to access your savings before you retire, or before the full term of the pension is up.

You can take up to 25% of your pension’s value, completely Tax Free, as a cash lump sum to spend on whatever you like. It doesn’t matter if you have a private or company pension as long as you are not already drawing an income from it. You just need to be over 55 due to the regulation in place.

What types of Pension can be accessed?

*Note: State Pensions are not suitable for Pension Release

Pension Release v Loan

There are many reasons why you may want to consider using Pension Release to access a Tax Free Lump Sum from your pension fund and for many people this is one of the most sensible financial planning decisions you can make.

The example show is illustrative only and shows a typical case where pension release is used to pay off an outstanding loan. The example also shows how you can regrow your pension whilst benefiting from the generous tax reliefs available from the Government.

Let’s say: You owe £7,000 to a loan company, and are currently paying £170 per month with 5 years remaining at 17% interest. You have £28,000 in your pension.

What could you do with your £170 per month?

What if you Released Tax Free Cash from your Pension to pay off the Loan?
You release £7,000 Tax Free from your pension and pay the loan back in full now.

 

Optional – Reinvest back in your pension (Credencis Recommendation)

Now your loan is paid of you are free to do what you like with your £170 per month. If you decide to reinvest it to regrow your pension then the government automatically adds the £42.50 it took as tax relief so the full £212.50 you earn’t ends up in your pension.

 

After 5 Years

You can release up to 25% of your pension tax free,so in this example your private pension would need to be worth at least £28,000.The comparison assumes your current pension performs at the same level as any new pension we advised you to transfer to, if that was our advice. Tax treatment depends on your circumstances and is subject to change. People paying above basic rate tax will need to claim some relief from HMRC.

 

After 5 Years

Your loan has just been paid back
Total paid back is £10,200 and you had to earn £12,750 to do it.
You have paid £3,200 in interest, as well as £2,550 to the government in tax.
If your pension grew at 5% net during this period it would now be worth £35,736
Assuming your pension is growing at 5%pa, would it really make sense to pay interest of 17% pa on the money you owe, when your pension is earning 5%?

Summary

Now ask yourself if your current pension is actually growing by as much as 5% every year.
More importantly from a financial planning point of view you could reduce your financial risk by using pension release to reduce your debts and actually increase your pension savings.

Of course this will depend on how you use your money and on your personal circumstances. Please note that you can only take 25% tax free cash from your pension once.

Benefits of Pension Release through Credencis: