Details on Can you cash in your pension early

When might I pay a Lifetime allowance charge

At any time when an individual takes benefits from a registered annuity scheme, there must be a check to be certain that the lifetime allowance has not in fact been surpassed. If the lifetime allowance has been exceeded, then the surplus fund (the chargeable amount) will be subject to a whole life allowance charge of 25 per cent if it is used to provide income. Income then drawn from the excess fund will be opened to tax at the member’s marginal rate.

Alternatively, the main surplus fund could be taken as a one-off payment sum but subject to a 55 percent tax charge. These charges are meant to compensate for the tax advantages that the funds will have attracted over the course of time both on contributions and on standard growth.

If an individual were to take benefits from a vulnerable fund of £2m in 2011/12, as an example, the fund would the lifetime allowance by £200,000. This excess may well be taken as a lump sum of £90,000 (£200,000 less 55 percent tax) or as a fund (after 25 per cent tax) of £150,000 that must definitely be used to provide taxable earnings.

Crystallisation of benefits from a registered pension scheme may well occur in the following situations:

. The commencement of allowance fund withdrawal or obtainment of a life-time allowance;

. The commencement of occupational scheme benefits [*SCO]. Taking one-off payment sum cash benefits;

. Reaching the age of 77 with an uncrystallised pension [*SCO]. Payment of an one-off sum death benefit;

. Transferring to an overseas allowances scheme.

The total of registered allowance benefits must be measured against the lifetime allowance on any one of these events.

The lifetime allowance charge would not be confused with the unapproved payment charge, this is levied when monies are paid out of an annuity when then would not have been. For example if an individual enters into a project that permits access to annuity monies before the age of 55. This charge can be as much as 70% so if you are thinking can you cash in your pension early Then you need to think very meticulously before moving on as you may be a extremely costly exercise for you.

Early Pension and Early Retirement are key issues looked at by My UK Pension Plan, an online service which connects individuals with Financial Advisers

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