What to Know Before you Take Early Withdrawals from Your Pension



Angela Joell, Education and Investment Manager at The Argus Group, looks at the recent changes in Pensions Legislation. This article originally appeared as an opinion piece in The Royal Gazette.  


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By now, many are aware that Government has passed legislation amending the National Pension Scheme, granting one-time access to your pension plan up to $12,000. For some, this is much needed relief. For others, this is cause for consideration.

As with any decision, there are pros and cons to withdrawing from your pension plan. With no additional withdrawal fees and quick availability – within 20 business days – it might feel like a no-brainer. If you are over the age of 55, and have a high pension balance, this withdrawal will not materially alter how much you receive after retiring at 65.

However, if you are closer to retirement you may not have time to recoup losses. And, if you are younger, you could lose the opportunity to have earned interest over a longer period of time.

While the primary objective of your pension is to sustain your financial health in your later years, that certainly does not rule out its function to support you during a time of need. If you are experiencing hardship, this withdrawal may be of more value to you now, removing debt and stress that could be harmful to your overall wellbeing.

Here are a few things to consider if you choose to withdraw:

  • It may be helpful to first consolidate your debt and reduce your overall payments rather than use the full amount on one debt.
  • Be strategic in the use of your cash so that it will last longer by budgeting and perhaps placing the funds in separate accounts. Consider paying critical expenses ahead of time to take advantage of an early payment discount.
  • Make sure that any balance that remains after you’ve paid your bills is placed in an interest-bearing account, ready for any future emergencies.

On the other hand, there will be many of you who may be financially able to weather the storm. There is still great merit in having access to a portion or the full $12,000 of your pension funds.

Remember, you always have options:

  • Contributory Pensions are “locked funds until retirement”. However, you can now unlock up to $12,000 by withdrawing and then transferring it as a voluntary contribution. Unlike your locked retirement funds, your voluntary contributions may be withdrawn at any time.
  • Have you been thinking about making small upgrades to your home? This is a great opportunity to use a portion of your cash without seeking a bank loan. Bonus – you can save even more when you DIY and you may find you have more time on your hands to enjoy the project.
  • One very real benefit is financial peace of mind. If you have large costs on your horizon or concerns about a possible recession, this is an opportunity to have a portion of funds within reach. While they sit safely in a low return account, you can enjoy great return in being able to sleep at night without worry.

One final tip – always feel comfortable seeking advice from a Financial Advisor. This is an individual decision; it is not one-size-fits-all.