Trying to decide whether to cash in a pension early? Before you do, there are a few things you should consider.
Changes to pensions in 2015 mean that we now have far more flexibility and freedom when it comes to accessing our money.
You can start accessing your pension pot at 55 but that doesn’t mean you should. It really depends on your individual circumstances.
It is not usually recommended to cash in your entire pension pot early. You don’t know how long you will live after retirement and taking your money from your pension in one go may leave you short later in life.
If you do cash in your pension and you’re still earning an income then you could end up paying substantially more tax. You can take 25% of your pot tax-free but the other 75% is subject to tax. Combined with your salary income, this could push you into a higher tax bracket.
There are some instances where it might be beneficial to cash in your pension early. For example, if you have several pensions and one of them is very low in value, you may decide to cash this one in. You could use it to pay off a mortgage or debt, take a holiday or buy a big-ticket item.
Recently, there has been a rise in companies claiming you can release money from your pension before you turn 55. You should be extremely wary of any company that says they can do this. This can result in hefty taxation and fees and is not recommended.
Decisions around your pension should not be rushed into. An independent financial adviser will help you make informed decisions that are right for you. At Rockwood Financial Solutions, we look at your individual situation and make recommendations based on your needs now and in the future.
If you need help with any aspect of financial planning then get in touch. Speak to a professional financial adviser at Rockwood before you decide whether to cash in your pension early.