Can I Cash in my Pension?

Are you wondering “Can I cash in my pension”? The simple answer is, “It depends”. Read on for more information, or fill in the form on the right of this page, to book a phone call to discuss your personal options.

Cashing in a pension is an option that a lot of people are considering at the moment, with the difficult financial climate and the reduced availability of loans and finance from other areas. But think carefully before taking a pension loan, or pension release option. When you reach retirement age, will you still be able to afford the lifestyle you want, if you have taken cash from your pension early? (Please be aware that this website does not offer financial advice. The purpose of this article is just to make you aware of some of the options, and potential pitfalls that you should consider before releasing cash from a pension. We encourage you to consult a qualified Independent Financial Adviser if you are at all unsure – an IFA)

You should also bear in mind that with the increased demand from people looking for pension loans or pension release, there are some unscrupulous characters out there looking to cash in on the market. In December 2011, for example, one type of pension loan arrangement (called a Pension Reciprocation Plan) was declared illegal by the High Court, and people who had raised cash from their pensions using that scheme are likely to have to pay it all back! (Note: this case looks likely to be appealed by the companies who ran the Pension Reciprociation Plans).

If you do decide that cashing in your pension is the right option for you, take care to discuss it carefully with any company you choose. Ask them about the legality of their scheme, and whether it will pass scrutiny by HMRC (the Tax Office) and the FSA (Financial Services Authority).

New schemes to help people cash in a pension are popping up constantly at the moment… even we have difficulty monitoring them all and keeping up with the different options! So bear in mind that the information below is just general, and the details may have changed by the time you read this article – and please note that this website does not offer any financial advice. To discuss the options available for your personal circumstances, please use the form at the top-right of this page to book a free phone call.

Generally speaking, the options available to you will depend on the amount of money you have in your current pension fund (or the combined total of several “pension pots”).

Pension Loans

Pension loans are often offered to people with lower current value in their pension fund – £15,000 to £30,000 for example – though some companies offer these to all customers, regardless of how much cash they have in their pension. Sometimes loans are “secured” against your pension, ie. they are similar to other types of secured loans, but your pension is used as “collateral” in case you are unable to keep up the repayments. In other cases, the company will help you to transfer your pension to another provider (often a SIPP) and then use the SIPP to invest in products or services which pay an upfront sum to you. The amount of cash that you can get from pension loans is usally in the range of 15% to 40% of your current pension’s value. As with any type of loan, make sure you check all the terms and conditions, and pay particular attention if the company is proposing to transfer some or all of your pension overseas, outside the UK.

Pension Reciprocation

As we mentioned earlier in this article, Pension Reciprocation Plan (PRP) schemes were recently declared illegal by the UK High Court. As far as we know, no companies in the UK are now offering this type of scheme for people who are considering cashing in a pension. Under these kind of schemes, several people transferred their pensions into a central pot, which then made loans to other people in the scheme. It may be worth asking any company you speak to about cashing in your pension whether they use a Pension Reciprocation Plan and are aware of the recent High Court case. Even if they don’t use this method, this will tell you whether they keep abreast of current legislation and changes in the law.

Pension Release – Cashing in a Pension

Again, there are many companies offering “pension release” or “pension fund advance” options to help you release cash from your pension. These are usually variations on the pension loans schemes mentioned above. Often they help you transfer your current pension to a SIPP, and then invest the money from the SIPP in different products which may pay a cash lump sum, or some form of commission which is then passed to you. These schemes will usually allow you to release the equivalent of 15% to 40% of the cash from your pension.

However, we do know of one company that works in a different way. They will help you to transfer up to 90% of the cash from your pension to a Trust, from which you can then borrow some, or all of the cash, interest free. This company only accepts customers with current pension funds higher than £30,000. This company also regularly liases with HMRC and the FSA to ensure that their services are compliant with all current financial legislation. If this is of interest to you, and you have a current UK pension fund (or several funds combined) of more than £30,000, please fill in the form at the top-right of this page, and we will pass on your enquiry.

“Can I Cash in my Pension?” – Summary

There are many reasons why people consider cashing in a pension. It may be that you are struggling with debts (or even facing insolvency) and want to get creditors off your back. Or for some people, pensions cash is seen as source of money to invest in a project (or perhaps start a business) that they think will give them a higher return in the long-run than they are likely to get from their current pension provider.

Whatever your personal reasons for wanting to release cash from your pension, we encourage you to proceed with caution. Along with your house, your pension may be your largest investment so treat it with care! Have you considered all the other ways of raising money or getting a loan, before looking to cash in your pension? Although the retirement age seems to be constantly getting higher at the moment, there will still come a point when you want your pension to provide you with an income in retirement. Think carefully before taking a course of action that may reduce that potential income. If you are at all unsure, please consult a qualified Independent Financial Adviser (IFA).

If you would like to discuss your options for raising cash from your pension, free and without obligation, please fill in the form at the top-right of this page to book a phone call.