Factors to consider before unlocking your pension

If you are considering unlocking your pension, there are a number of things you must think about first.

Sometimes it can feel as though your nest egg, which you may contribute to each month through either money taken out of your salary or a transfer to a private account, is just sitting there.

When you are struggling financially, such as with rising demands for debt repayments or unexpected bills, it is easy to start wondering whether you can gain access to pension funds.

Other situations when you may be keen to get your hands on some added cash include when you want to raise finance to inject into your business, in order to help it expand and thrive. This may be particularly important if you are hoping to rely on it as a source of income once you retire.

Alternatively, it may be your company that is struggling with debt, so you might want to look for ways to raise the cash necessary to get it back into the black without having to rely on further borrowing.

As you can see, there are many advantages to be experienced if you decide to cash in a pension, but it is worth making yourself fully aware of the potential risks as well.

To begin with, by removing money from the account now before you have left full-time employment, you will be making a substantial dent in your nest egg.

Not only will withdrawing it mean the sum left behind is smaller, but also that there is less cash in the retirement vehicle to accumulate interest. The point of a pension is that it is built up and added to over a long period of time while you are working and the closer you get to your retirement the more it will be worth.

It is for this reason that in the UK, you can begin to receive money from your pension from the age of 55. The thinking behind this is that you will be closer to the age at which you leave full-time employment and so you will have a clearer view of what the state of your assets is in terms of supporting you in later-life.

Yet there are services that allow you to remove up to 100 per cent of the cash in your occupational pension schemes, private pension plans, self-invested personal pensions and small self-administered schemes before you reach 55 years old.

These financial planners will be able to provide you with the information to do this. However, again you should take the time to carefully assess your situation.

It is not possible to unlock money in your state pension – which you will go on to receive once you reach the national retirement age – so you have this to rely on, but on its own it may not be enough to maintain the lifestyle you are accustomed to.

Bear this in mind when considering whether to cash in your other pensions. However, if you have plenty of assets to rely on once you leave the workplace, you may simply prefer to invest this money somewhere else where you believe it will perform better – such as property or your business.

Should you require the cash to pay off debt then you might not be on such a firm fiscal footing, however you could be in a position where you feel you have plenty of time in which to rebuild your nest egg before you retire.

Consider all of these points so that you can get a better idea of whether or not pension release is right for you.