subject: Why Should You Unlock a Pension? – A Simple Guide [print this page] There are many reasons why you should wish to unlock your pension (or cash in your pension as it is sometimes called) and it generally means you can receive a lump sum of your pension or a regular income. If someone chooses to unlock their pension before retirement, it is almost always driven by financial circumstances.
Previously, if you were aged 50 or over, unlocking your pension was a possibility, however recent changes will mean that you'll now need to be 55 or over to unlock your pension. However it ought to be noted that when you unlock a pension you'll not generally receive all the moneys that are contained within your pension scheme.
If you are thinking about unlocking your pension it could be for financial reasons, usually these include:
Paying off your mortgage early
Assist you with consolidating debts
Business or other financial commitments
The chance gain access to cash for just about any other short term venture, financial or personal reason
Often when people unlock their pension it's to receive the lump sum that will be available to you. If it is this lump sum payment that you are after then unlocking your pension may be a great option. Everyone's circumstances are different and it is not necessarily the right option, the costs are often only justifiable in certain cases so it's very important to take independent financial advice before consider unlocking a pension.
Pension unlocking is not suitable for everyone, and it is vital to think about the risks associated.
You'll almost definitely receive less money/income during your retirement years (this is where good solid financial planning is essential)
There could be penalties for unlocking your pension early. This will obviously reduce how much cash you will get
It can affect future state benefit claims
It can affect any ill health benefits further into the future
When you have a spouse it could have an effect on the benefits they receive in the future
So whilst there are several major benefits to unlocking your pension early it is important to consider all of the disadvantages that will come with your choice to unlock your pension. It is crucial that you don't enter into any decisions lightly and that all angles are considered. You'll find that there are financial advisors who're experts in pension and the issues linked to the decision to unlock a pension, so make sure you speak with one prior to you making any final decisions. A financial advisor will be able to run through any financial issue that may be raised and help you decide whether it is the best decision over time for you to unlock your pension.
