In the majority of cases, the earliest you can take money from your pension is 55, but is it a good idea and how much can you withdraw? The world of pensions can be complex, and making the wrong choice can have serious consequences. Luckily, Portafina has put together this simple guide to six of the ways you can make use of your pension at 55.
From keeping it where it is, using it to take a regular income or withdrawing the whole lot in one go, you may have more options than you think. However, depending on the type of pension you have and your future plans, some of these options may be better suited to your circumstances than others.
1. Take a Tax-free Lump Sum
Lots of personal, private, and workplace pension schemes allow you to withdraw up to 25% of your pension as a tax-free lump sum. This limit is likely to be different from scheme to scheme and withdrawing cash from a final salary pension could impact how much income you receive.
2. Release Money From Your Pension
When you reach 55, you can release money from a personal, private, or workplace pension. People with final salary pensions would need to transfer the fund to a personal scheme before they can take the money, but as this involves giving up a guaranteed income, it’s not often recommended.
3. Use Your Pension to Buy an Annuity
Some people choose the security of exchanging their pension fund to an insurance company in exchange for a regular income for the rest of their life, but rates have decreased in recent years, and their inflexibility can make them an unattractive option.
4.Take a Regular Income From Your Pension
Another way to turn your pension into a regular income is to choose a pension drawdown scheme where you can take your savings either in regular payments or in lump sums when you need to.
5. Withdraw All of Your Pension at Once
A few pension schemes enable you to take all of your pension funds in one go, but the longer you leave the pension intact, the more it will be worth.
6.Keep Your Pension Invested
Of course, you don’t have to take any money from your pension at 55. Leaving your savings invested for 5 or 10 more years could have a big impact on how much you have to live on, as long as the funds are being invested wisely.
Should You Take Your Pension at 55?
While you have the option to take your private or personal pension from the age of 55, it’s often not the best financial move for a lot of people. It’s important to realize that taking money from your pension at 55 should not be done with a short-term cash injection in mind as it will reduce the money you have to live on later in life. You can’t withdraw money from government pensions, and if you take money from a final salary scheme, you will reduce the regular income you receive in the future.
Before you make any financial decisions, make sure you seek expert advice and guidance to ensure you make the right choice based on your circumstances.