People with private pensions all over the world are constantly looking for investment opportunities that will bring about the best possible returns for their private pensions. A particular topic of interest at the moment for residents of the western world is "pension release."
What Is "Pension Release"?
The term "pension release" refers to the process of releasing an otherwise locked pension fund to make the money accessible to the owner of the pension early for whatever purpose they require access for.
In order to release money from your pension, you must fulfill one of the two below criteria.
They must either:
1. Be over the age of 55, and be the holder of a private pension
2. Be in ill-health and after a health check be deemed eligible to access their pension.
It is also possible to take what is known as a "hardship withdrawal" (USA resident's only). But this should only be done as a last resort and it may be subject to a 10% additional tax charge due to early withdrawal.
Also, residents of the USA on certain pension plans are allowed to take pension loans, but it's advisable to check with your employer as certain plans don't allow for this.
Why Do People Choose To Release Or Unlock Their Pension?
People can release their pension for a range of different reasons. Here are some of the most common reasons why people choose to access their pension early as opposed to waiting:
1. If they are in debt or mortgage arrears, pension release can be a useful means of gaining access to money to pay off the money they owe to their creditors (especially if other means of finance are unavailable, for example, if someone has a bad credit rating and is unable to take out a debt consolidation loan).
2. There could be an occasion for which the individual may incur significant expenses and they may have already taken out a loan but still need additional funds to cover the cost.
3. Home improvement is another common reason why individuals decide to release their pension. Sometimes re-mortgaging a property is not viable, and releasing money from their pension may be the only viable way to invest in the renovation or expansion of their existing property.
There are instances why such renovation could have health implication as well and thus needed to be done in time. An example is a case in which a property does not meet all the criteria in the new asbestos management plan and needed to be changed to avoid asbestos exposure in the house. This kind of upgrade tends to be a good investment because property will usually appreciate in value over a period of time.
4. They may wish to pay off their mortgage early, enabling them to save money if the situation is such that the interest rate on a mortgage is higher than the appreciation value of their current pension plan.
5. Some people choose to release money from a pension because they wish to travel, usually a holiday or a relocation abroad that can be facilitated by accessing their money early.
Are there alternatives to releasing a pension for people not in ill health or over 55?
Yes. It is possible to take a loan out against a pension fund, but usually this is not recommended because the charges and interest can be high, such an action is only advisable in an emergency and other suitable means of financing are recommended before taking out a pension loan.
Things to consider when thinking about releasing your pension:
1. Your future.
A pension is designed to be a fund to support you in your retirement years. Releasing money from a pension means that you are effectively accessing money that was intended to support you in the future for when you are unable to work. Careful consideration is necessary before making any decisions on pension release.
2. A reliable facilitator,
You need a reliable facilitator, unless you wish to trace and unlock your pension yourself. A pension release company is one convenient way you can commission the paperwork and legal representation to make the process run smoothly. According to Craig Morgan, the CEO of Pension Releasers, "Aside the complexity of some private pensions, people need to worry about pension scams out there. Your pension plan may require extensive investigation and administrative procedure before it can be accessed."
3. Check the fees
If you do choose to use a company, be sure that you check the fees before agreeing to undertake any pension tracing and unlocking.
4. What are Your Alternatives?
Are there other means by which you can access or borrow the money you require? If you are in debt, can you enroll into a debt management plan or consolidate your bills by taking out a debt consolidation loan?
Some people may be eligible for a standard loan from the bank and may not need to access their pension. Ryan Litfin, a co-host of one of the longest running economic shows in the US, says it is worth applying at the bank before releasing cash from your retirement fund as there may be another way.
It is very important to consider carefully if unlocking a pension is the right option. Another way to receive impartial, honest advice is to contact an Independent financial adviser who may be able to provide useful information and recommendations as to what would be a good course of action for you given your personal circumstance.
However, this can also cost money so it's advisable to take the time to make careful decisions relating to your pensions and your financial standing and also the future.