From April this year all people who decide to open their pension pots will have a possibility to take their whole pension pot as a cash lump sum.
Before you consider whether to do it it may be good to weight the strengths and weak points of a such decision. In addition, although the democratic changes done in the legislation of reformed pension law in UK, there are some requirements in order to draw a cash lump sum from your pension.
When they retire, people usually receive their pension in the form of a combined cash-flow source. One of them is the paid on a regular basis pension, while the other root of incomes is this of the lump sum withdrawal.
Most often, pensioners prefer to benefit from both options at the same time immediately after they reach a pension age. Practically, this process includes two steps. The person is drawing a cash lump sum, while the remaining part of the pension pot is used to provide a regular income.
According to the changes done in the law last year, after less than two months you may have an option to draw the whole of your pension pot. The right to draw such benefits from a pension scheme is for those who have reached the age of 55.
Considering this option would require from you to check some basic facts and their consequences on your pension.
The first upshot to your pension pot and the amount of the cash lump sum is the taxation component. The cash lump sum is not tax-free in some circumstances. It is good to know that this may be your case and you should be prepared for this.
The other most authoritative factor, determining the amount of the cash lump sum is the type of the pension scheme you have. There are different rules for the lump sum withdrawal for those who are members of defined benefit scheme and those being members of a contribution based pension scheme.
As already discussed earlier in other our articles, looks, like the law gives more freedom in taking decisions to the members of the contribution based pension schemes. If you have a defined benefit pension scheme, the scheme’s rules will determine how much you can receive as a lump sum.