What is the best pension release option...?

Question

My sister is being made redundant by Tyco Medical Company.
She was thinking of releasing her pension to square off her mortgage
She has paid into her pension £39000.
And the pension goup says that she can get £12000 of this
Can you tell me if she unlocked her pension fund is that taxable. below are blog photo copies of options.
She dissagrees about paying tax on what what was already taxed her wages..
Can you advise her of her best option to take based on the info below....(help...!. I have to listen to her....lol)

http://bp2.blogger.com/_3dHP_CJrEXQ/RyC_RDJogWI/AAAAAAAAABw/1Y1GmjqA3b8/s1600-h/tree.jpg

http://bp0.blogger.com/_3dHP_CJrEXQ/RyDBujJogXI/AAAAAAAAAB4/mUJA-s3trvI/s1600-h/option.jpg

http://bp0.blogger.com/_3dHP_CJrEXQ/RyDChjJogYI/AAAAAAAAACA/lrlPRxWKtW4/s1600-h/dec.jpg

Oh and must she sign the declaration

£18000 left on mortgage

Answer 1

I believe you can take a lump sum,
Tax free, I did. Pay of the mortgage?
This generally is higher interest than investments,
How ever the pension is going to be smaller.
Need to do the sums how long of mortgage left
Is there a settlement fee.
Is it better to pay of now or have a bigger pension years later.
How much interest will be saved by paying of now?
That should answer her.

Answer 2

Most of those options relate to the structure of the pension she would receive and this will depend upon her circumstances.

The first thing she needs to decide is whether to claim the lump sum which will result in a reduced pension. For most people it is probably better to do this but you have not given enough information for anyone to actually advise her.

Assuming she takes the lump sum (and reduced pension) then this sum will not be taxed.

The pension will, of course, be taxed as any other earned income.

I think she needs to take professional advice as I am worried about your comment which implies she thinks the money in the pension fund has already been taxed. If this is an approved scheme then the tax due on the earnings paid into the scheme will have been deferred until the benefits are paid out. The tax on the pension payments is the deferred tax on those earnings.

And yes, she will have to sign the declaration. There are rules about recycling the lump sum back into another pension and for claiming a higher pension due to impaired health. She needs to confirm the statements in the declaration to ensure the payouts are above board.