Should you ever take retirement benefits early from your pension plans and in particular take the much loved tax free cash lump sum?
One school of thought is that you should never do this for the compelling reason that if you take benefits early you will end up with lower benefits than if you wait until your “normal” retirement age.
You may be able to see a flaw in this argument particularly if your pension plan is a “money purchase” arrangement where there is no guarantee that future fund values and/or annuity rates are going to be higher then than they are now.
Five years of “early” income is going to take a fair bit of catching up if you choose to defer.
It is well worth while doing some calculations to see where the crossover point is going to be. A lot of this is going to depend upon life expectancy and of course we tend to underestimate just how long this is going to be.
There may be good reasons for accessing tax free cash early from your pension plans.
This has been possible since 2006 and it is not necessary to take any income at all if you don’t wish to do so.
Some clients have calculated that using tax free cash to pay off outstanding mortgage debt makes real financial planning sense even during this current period of low interest rates.
Generally speaking advisers are coming down strongly in favour of not “unlocking” pension funds but this is where individual advice is so important so keep an open mind and be aware of the advantages and disadvantages of doing this.
