Considering Accessing Your Pension Early Because of COVID-19? You Must Read This First
Looking back on 2020/21 may not leave you with too many fond memories due to lockdowns and other social restrictions. The impact of the pandemic has also been felt in many people’s finances, making it challenging to make ends meet.
Dealing with the restrictions has led many to question how they can generate more income to cover basic living costs. Although dipping into your pension for additional cash might seem like an easy solution, you should consider the implications of doing so.
Stay Abreast of Pension News and Legislation
The government has initiated several schemes to help business owners deal with the financial implications of COVID-19 restrictions. However, for many businesses, these schemes have not been sufficient to stay afloat. Therefore, the government is continually looking for new ways to provide support. You can minimise the chances of missing out on these opportunities by staying abreast of the news and legislation surrounding such support. The gov.uk website is an excellent place to check regularly.
Financial Support During the Pandemic
The sad truth is that many people will rack up significant debt during the pandemic. An even worse situation is that having got into debt, they try to borrow themselves out of it.
Additional borrowing is generally not a great way of managing your debts, so you should look for other ways of bolstering your finances in the pandemic. For instance, you might have to dip into your savings, investments, or emergency fund. You may feel reluctant to do so, but this option is often more beneficial than taking on loans.
Review Your Finances
If there is any good that has come from the pandemic, one thing is that people are becoming more financially aware. For instance, people generally have a better understanding of the value of their assets and how easily they can be liquidated.
Still, it can be challenging navigating a pathway through the financial minefield that the pandemic has laid. An excellent way to find safe passage is to consult a regulated financial advisor. You can get good advice on how to use your assets during these uncertain times best.
Advice and Support Regarding Pensions
It is even more crucial to receive sound advice and support regarding your pensions during times of financial uncertainty. If you don’t, you may end up making poor decisions that could cost you in the long run.
Government legislation from 2015 means you now have more freedom as to what you can do with your pension pot. One option is to take a 25% tax-free lump sum or additional lump sums from fifty-five.
Although taking cash lump sums may seem like a good way of easing the financial stresses of these times, there are potential downsides. Firstly, taking cash above the 25% tax-free threshold can significantly affect your tax status. Also, taking any lump sum money from your pension pot could leave you short of income when you retire. Professional advice from a regulated financial adviser can prove priceless in this situation.
Pension Advice and Guidance
As alluded to above, you should consider the long-term impact of taking money from your pension pot early. A key consideration is how reducing your pension pot will affect the income your pension generates during your retirement.
Pensions can appear complicated, and making poor decisions regarding them can have severe implications. Therefore, the government has introduced guidance for those considering exercising their pension freedoms.
You can access this guidance for free on the Money Helper website. However, be aware that this site only provide generic guidance. Therefore, you can get no specific advice regarding individual pensions. For this advice, you need to consult a regulated financial advisor. They will go through the details of your pension and discuss your best options for achieving your personal financial goals.
Conclusion
The lockdowns and other restrictions introduced to help combat the pandemic have been challenging and financially stressful. Many people and businesses have been thrown into uncertainty regarding their regular income, meaning they’ve had to look for alternative sources.
For the over-55s, a pension fund could prove to be a financial lifeline to stop you from going under. Reviewing your pension with a regulated financial advisor will inform you if this option is suitable for you.
Indeed, if your pension is nearing maturity, accessing some tax-free cash could be a good option. Doing so could help you clear debts or other financial pressures.
However, pension freedom will not be suitable for everyone or every situation. Your retirement income could be threatened if you take money from your pension pot early. Also, taking money above the 25% tax-free threshold can leave you with a significant tax burden. The best advice is to get the best advice! Speak with a regulated financial advisor before making any decisions that could impact your pension or jeopardise your retirement income.
If you are considering your pension, consider using a regulated pensions specialist like Portafina or, view the guides at Money Helper.
