Personal Pensions, Retirement Annuity Contracts and Free Standing AVCs

If you have a Personal Pension, or Retirement Annuity Contract, or Free Standing AVC there are no problems with taking the benefits at age 50.

There are however drawbacks to taking the benefits early. The main drawback is the fact that the fund will have less time to grow, so it will reduce the benefits you could take in the future, and if you want it to provide an income it will be lower because you're younger.

Before you take benefits from your pension you also need to make sure that you are aware of:

Guaranteed Annuity Rates - some pension contracts, especially older ones may have some guaranteed benefits, and if you take benefits early then these could be lost. These can be very valuable compared to current annuity rates.

Penalties - some companies apply a penalty for taking the benefits before your normal/originally planned retirement age. These can be nominal to relatively large penalties. However if you waited then it is possible these penalties could be avoided.

The rules now allow 25% of the fund to be taken as a lump sum from age 50. The remaining fund can then be invested in either of the following:-

The two basic options are:-

1. Tax-free cash and annuity purchase - this allows you to take the lump sum, and buy an annuity, which is an income for life. See annuities for more details.

2. Tax-free cash and income drawdown - this again allows you to take the lump, but rather than converting the remaining money to a fixed income, it can then be invested. It is possible to either take an income from the remaining funds, or leave it invested without taking an income. If you do not take an income, then the fund could grow to provide you with better benefits at a later date. See income drawdown for more details.

Unlocking a Section 32 (Buyout Bond)

A Section 32 contract, sometimes called a buyout bond, can be quite a complex contract. It is not always possible to take a Section 32 contract early, if it contains what is known as GMP (Guaranteed Minimum Pension). Before it can provide any benefits a Section 32 contract sometimes has to ensure that your pension will be a minimum amount at age 65. This can mean that it reduces the tax-free cash available, and forces the insurance company to fund any deficit, if your own fund can not support the GMP. So to some extent, it can offer guaranteed benefits, and if you want to take it early as a Section 32 contract it may not be possible.

However, it is possible to transfer most Section 32 contracts to a the Personal Pension environment. This would mean that the GMP element would be converted to Protected Rights, and any guarantees would be lost. It would however allow you to take you pension in the way described above.

There are however other issues to consider with a Section 32, and that is the level of tax-free cash which is available, since it could be greater or smaller than 25% of the fund value.

Contact us online, or call 0800 011 2713 , without obligation to find out more about "unlocking" your pension.

Warning: Taking your pension benefits early is unlikely to be in your long term financial interests as it will probably reduce your retirement income. Always seek independent financial advice. Contact us now

Don't take any chances with your pension, your retirement will depend upon it, talk to an independent pension specialist now