How do I cash in my final salary pension

Cashing in your Final Salary Pension is not an easy thing to do because its primary purpose is to be there for your long-term retirement income. However, the first step to finding out how do I cash in my Final Salary Pension is to check whether you are required to get independent financial advice.

If the Cash Equivalent Transfer Value is over £30,000 then your Final Salary Scheme will require you to obtain advice from an appropriately qualified financial adviser who is working with a financial services firm that has the appropriate Financial Conduct Authority permission to give such advice.

Having said that, it is the firm that decides whether they will take on your case and not the individual adviser. The firm needs to ensure that there are enough merits that fit their criteria in order to undertake a more detailed analysis of your circumstances. It is worth noting that a firm can decline to advise.

For example, if you are under age 55, it is unlikely your case will be taken on unless there are other mitigating circumstances such as a very high level of wealth and that it can be demonstrated that you clearly will not need the Final Salary Pension to live on in retirement. Additionally, you can’t access the tax-free cash element until age 55 rising to age 57 in 2028.

If the analysis does proceed and it shows that you don’t have enough money for the rest of your life i.e., you will likely run out of money too early, then the advice would be to remain in your Final Salary Pension. On the other hand, if you have other sources of income for retirements such as rental income or other secure income then it is more likely advice to transfer out would be given.

Final Salary Pension Schemes exist ultimately, to pay out an annual pension to their members for the rest of their lives when they reach their scheme’s pensionable age.

The annual income this provides is index-linked to inflation, it is guaranteed and is, therefore, a very valuable source of regular income.

Transferring or ‘cashing in’, means first transferring the Cash Equivalent Transfer Value into your own pension pot as a defined contribution pension. Defined contribution schemes are very different from defined benefit pensions with the main difference being the former is always measured as the total cash value of your pension pot. Both types of schemes can contain pension funds typically managed by Life companies.

Defined contribution schemes do not pay incomes in the same way defined benefit pensions do. However, they are very flexible in the way in which you can withdraw your funds which is one of their main attractions over the fixed pension annual income amount provided by a defined benefit scheme.

So, to answer the question how do I cash in my Final Salary Pension more literally, as in how do you turn it into cash in the bank, it would need to be an advised transfer (if over £30,000 in value) it would then be transferred into a defined contribution pension pot (your personal pension) and then you would request a transfer into your bank. The whole process generally takes around 2 to 3 months although, it could easily take longer than that in certain circumstances where there are delays in providing the necessary information requested.

Cashing in the whole lot would very likely result in a large amount of income tax being paid because only 25% of it would be tax-free with the rest being subject to your income tax rate at the time of payment.

This is because pension tax relief is given when you make pension contributions to build up your pension savings and the income it produces is taxable income.

Unlike as with an ISA where there is no tax relief on contributions and there is no tax to pay on withdrawals. Both pensions and ISA have the benefit of tax-free growth - that is, they are not subject to capital gains tax on withdrawals.

This article looked at an introduction to how do I cash in my Final Salary Pension but there is a great deal more to consider than is covered here. The advice can only be given to an individual after a thorough assessment of all personal (and their partner’s) financial circumstances. The next step is to have an informal exploratory chat with a qualified adviser to see if it is worthwhile proceeding to the formal process known as regulated advice.

To help you make the right decision for your final salary pension, we will take you through a clear, simple, transparent, and regulated four step process. 
If you would like to explore and discuss the options for your final salary pension transfer, - helping you make the right decision on your pension 
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