The Benefits Of A Pension Lump Sum

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They have been called the 'golden generation'; a group of over fifties that is healthier, richer and happier than any that has gone before it. However, the future looks uncertain. Many are looking beyond retirement and asking what comes next? In an attempt to maintain their high standard of living many may consider taking a pension lump sum. The question is this: how does it work?

A pension lump sum enables you to take a large amount of money with which you can start your retirement. You can choose to spend it yourself, help out family or invest it in any way you see fit.

The rules have recently changed. You can now take up to 25% of your pension as a tax free lump sum after the age of 55. The rest can be paid out as an income after retirement. The benefits appear obvious, but so too do the pitfalls.

On the plus side you can use it to spend in any way you see fit. Many take the chance to have a trip of a life time. Others will look for investment opportunities that may out perform their pension in the long run. Thirdly there are those who will take the opportunity to help out younger members of the family.

This might appear to be a highly attractive option in the current climate. For those looking to make their way onto the housing ladder the climate has seldom been more difficult. By using the tax free pension lump sum parents hope to help them make their first steps onto the property ladder. They might also see this as an investment from which they can receive a payout further down the line.

However, you should be careful. A lump sum will reduce the level of your retirement income. Furthermore helping out other members of the family in this way can have all sorts of consequences. There is no guarantee you will make a return on your investment. While any parent would like to help out their children they must guard against placing their own financial future at risk.

As such you should always take financial advice when planning to take a pension lump sum. Make sure you understand the benefits and pitfalls. It will always be a trade off. As long as you know what you're getting into, it can be one that pays real dividends down the line.

About the Author:
Dominic Donaldson is a finance expert. Find out more about pension lump sum and the services offered from from Montfort International.



Article Originally Published On: http://www.articlesnatch.com


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