If you’re struggling financially or facing unexpected expenses, you may be considering withdrawing money from your pension early to make ends meet.
However, there are strict rules when it comes to when you can withdraw money from your pension. Unless you’re seriously ill, you cannot access your pension before the age of 55 (rising to 57 by 2028). Once you are able to make withdrawals, you should think carefully about how doing so could affect your retirement income longer term.
Here, we’ll explain when and how you can withdraw your pension early, and suggest some alternative ways of making ends meet if you’re struggling financially.
If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.
There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
When can I start withdrawing my pension?
Under normal circumstances, you can start accessing your defined contribution pension (workplace or private pension) from the age of 55. The age at which you can withdraw your pension increases in line with any rise in the State Pension age, so will increase to 57 by 2028.
You can take as much of your pension as you want from your pot, and the first 25% will be tax-free. The amount savers are able to access through their pension tax-free lump sum was capped at £268,275 in the Spring 2023 Budget.
Any withdrawals greater than 25% will be taxable, and could potentially push you into a higher income tax bracket (especially if you are working full-time). It’s therefore important to carefully consider the impact of any withdrawals on how much tax you’ll pay. Read more in our guide How much tax will I pay when I withdraw my pension?
If you can, it’s usually a good idea to leave your pension untouched for as long as possible, rather than accessing it as soon as you reach age 55, so it has the opportunity to keep growing. Once you reach retirement, the most common options are to either draw down your pension as a regular income or use some or all of your pot to buy an annuity, which will provide you with a guaranteed income for a fixed term or the rest of your life.
What will happen if I try to withdraw my pension early?
Unless you meet specific criteria (which we cover in the next section), HMRC will heavily penalise any withdrawals from your pension before the age of 55. You will be subject to at least a 55% tax penalty on the amount you withdraw, but sometimes as much as 70%. Given the significant penalty for early withdrawals, most pension providers will not let you take money out of your pension before age 55.
Beware of ‘pension liberation’ scams claiming to be able to help you withdraw your pension early with no charges. Scammers may offer you a ‘loan’, ‘savings advance’ or ‘cashback’ from your pension, telling you that you’re free to access your retirement savings before the age of 55. If you are a victim, you’ll pay a hefty tax penalty to the government and also have fees taken from your pension for the transfer. Find out more about how to spot and avoid pension scams in our article Don’t let scammers steal your retirement.
When am I allowed to take out my pension early?
Some pension schemes will allow you to make early withdrawals if you have a health condition or disability that means you are no longer able to work. This is called being ‘medically retired’, and different providers will have different definitions. For example, some providers will require that your condition stops you from performing any kind of work at all before they consider you medically retired.
If you’re terminally ill, with a life expectancy of less than one year, you can usually take your entire pension pot as a tax-free lump sum, provided you’re under 75 and your doctor can provide confirmation of your condition.
You can read more about withdrawing your pension in the event of ill health or disability in our article Can I retire early because of illness or disability? However, it’s important to seek professional pension advice before making an early pension withdrawal.
Can I access my State Pension early?
No, you won’t start receiving the State Pension until you reach the government’s State Pension age, and there is no way of accessing it early. The current State Pension age is 66, expected to rise to 67 by 2028.
Sources of help if you are struggling financially
Even if you are over 55 and can take a tax-free lump sum from your pension, it may not be wise to do so. The more you take out now, the less you’ll have to live on in retirement, so it’s important to think about things carefully. Read more article Should I take my tax-free pension cash at 55?
If you run into financial difficulties and don’t have much in the way of savings, you may have other options available to help you make ends meet. Our article How to raise emergency cash looks at some of the ways you might be able to raise funds.
Our article How to take control of your debts contains some helpful advice if you are struggling with debt, including charities you can reach out to for free advice. Our government benefits section also outlines several forms of government welfare you might be entitled to if you are on a low income.
If you feel as though your financial situation is having an impact on your mental health, read our article Are money worries affecting your mental health? to find some resources and advice on how to cope.
If you want to check out some tips for building savings for future emergencies, have a look at our article How to build an emergency fund.
If you’re thinking about getting independent financial advice, financial services company Fidelius is offering Rest Less members a free initial consultation with an independent financial advisor to chat about your finances, where you are now, and where you want to go.
There’s no obligation, but if they feel you’d benefit from paid financial advice, they’ll go over how that works and the charges involved. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor, the review site for financial advisors.
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