How does pension release work?

In times of financial strife, it can be hard to know where to turn – but pension release may be the one option that you have not yet considered.

If you're now asking "can I access my pension early?", the answer is yes – indeed, you may be surprised to learn that in the UK you can release cash from such a retirement scheme once you are over 55 years old.

Typically, you will receive the money in the form of a one-off, tax-free lump sum. This is normally the equivalent of one-quarter of the total nest egg.

However, there are a few things you should keep in mind if you do decide to release pension funds before you reach the state retirement age. Perhaps the most important is that when you do leave full-time employment, you will only receive 75 per cent of your cash, most likely in the form of an allowance.

In addition, because you took a chunk of it out early, the amount of interest the account will have earned in the meantime will be less than if you had left the cash where it was.

Make sure you are fully aware of this moving forwards so that it does not come as an unpleasant surprise once you retire. Remember – your later years are a time in your life when every penny really does count.

However, sometimes it is what is going on in your life right now that is more pressing, which may be why you considered pension unlocking in the first place.

If you have got to a point where your debts are spiralling out of control and you can no longer afford to take out more loans, releasing money from your nest egg could provide you with the support you need to get back into the black again.

This means that as you start to build up your retirement fund once more you will be in a better place from which to do so and will not be distracted by creditors making demands for repayment.

Alternatively, you could use the cash you receive to pay off any debts to your business. If you are counting on your company to support you in later life, doing whatever you can to ensure it succeeds is important.

You could also use the cash to give your corporation a bit of a boost and help it to expand, such as by opening a new branch or taking on a few more members of staff.

Indeed, there are so many areas of life where your pension could help to benefit long before you actually retire. You could use it to pay for your child's wedding, university fees or first home. Keep in mind that this could be their inheritance and will mean that they avoid paying a tax on your estate once you have passed away.

All of this may have prompted you to think more seriously about this option – but what happens if you are younger than 55?

Luckily, there are teams of professional planners in the UK who can help you to unlock the money in your pension scheme if it is worth more than £80,000.

They will provide you with the information and advice you require to go through this process.

Depending on who you work with, you will be able to unlock cash from small self-administered schemes, self-invested personal pensions, protected rights, private pension plans, occupation pensions and final salary defined benefits.

As long as it is not your state retirement fund, you should be able to get the money you need, so why not explore this option further today?