Consumers should be wary of unlocking their pensions as there is a high risk of a reduced level of income in retirement, warns the FSA.
The warning comes as the regulator, in its latest consumer publication - Unlocking pensions: Make sure you understand the risks - cautions consumers to be aware of the risks involved when taking out their pension benefits before they retire.
Taking out a pension before the normal retirement age rarely benefits anyone, the FSA says. On the other hand, it will most likely mean less income in retirement.
People considering unlocking their pensions should consider questions such as:
- How much pension income would you get now and how much would you get if you left it until your retirement age? Would it be enough to meet your living expenses?
- Do you really need to raise extra cash?
- If so, is there any other way you could raise the money you need?
If consumers still wants to unlock their pensions, the FSA urges them to think about following:
- What benefits could you be giving up?
- What would the effect be on your state benefits or tax positions?
- Would you have to pay any penalties if you unlocked your pension?
- How much would you have to pay in charges to get your money early?
- How much would you have to pay the adviser?
- How much would your adviser receive out of your pensionm fund for unlocking your pension?
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