Sammie Ellard-King
I’m Sammie, a money expert and business owner passionate about helping you take control of your wallet. My mission with Up the Gains is to create a safe space to help improve your finances, cut your costs and make you feel good while doing it.
You’ve landed here because you want to know, ‘can I withdraw my pension before 55?’
You’ve been getting paid monthly, and it’s suddenly come to mind that you could have a fair bit tucked away, but can I withdraw my pension early?Â
I asked myself this same question to my pension provider a few years back, so don’t think badly of yourself for doing the same. If you can get to the money now, that would be incredible. It is, however, more complex than that, and we’ll explain why.
Over 73% of us have multiple pension pots, so finding out how much you even have in the first place can be challenging for some.
For those who have consolidated their pension into one pot, congratulations, you’re the more organised in our nation.
This article will discover whether drawing down your pension early is even possible and, most importantly, how you can do it.
Table of Contents
Can I withdraw my pension before 55?
In short, yes you can, but there are certain restrictions and hefty tax implications. The way around this is being seriously ill or expected to live for less than a year.
If that’s a situation you find yourself in, we’re incredibly sorry to hear that, and we wish you all the best. The tax implications below will not apply to you, but the ordinary pension drawdown tax will (see more below).
If you withdraw your pension early, you could face a tax bill of 55%, which is why most providers will not accept your early requests, mainly for your benefit.
If you have a private pension, you may be allowed to release the money, but this is subject to approval from the provider, which can be challenging.
Essentially it’s a bad idea unless you’re gravely ill and the money is better spent helping you live a better life in your final months.
Some pension products exist for specific careers, such as athletes and football players. They can access the funds a lot sooner, but you must fit specific criteria to get one, and they’re challenging to find for the public.
If you’re wondering whether you can convince a pension provider to pay out early, you need to know that the financial conduct authority regulates firms. This means they have to follow set rules, and the FCA is there to check they don’t break them!
So, when can I take money from my pension?
Currently, you can begin drawing down your pension at 55, but this is set to increase to 57 in 2028, meaning if you have over six years until retirement, there will be another two years to wait.
This age bracket applies to both workplace and personal pensions. Your employer provides workplace pensions, and private or personal pensions are the ones you set up yourself.
What tax benefits do I get from a pension?
One of the best reasons for regularly contributing to your pension is the current tax benefits.
The UK government has set it up, so you prosper from doing so in the form of tax relief. This means you won’t pay any tax from the money you put into your pension.
There are two types of pensions that you can get tax benefits from these to include:
Workplace Pensions
If you have a workplace pension, as it’s mandatory, they add at least 3% of your monthly salary. Your contribution is 5% making a total of 8% pension contribution per month, which doesn’t sound like much but soon adds up if you keep it up.
Your employer handles all of this for you, telling the government how much they’re paying so you can receive tax relief. Popular workplace pensions are with companies like Nest and People’s Pension.
You can opt-out of a workplace pension if you like, but you also lose your employer contributions. Only under particular circumstances is this ever a good idea.
Personal Pensions
Your personal pensions or stakeholder pensions as they’re also known acts similarly to your workplace pension, but instead, the government refunds the tax relief to you directly into your pension. For example, if you pay £150 into your pension, the government would match it with £30 making it £180.
The great thing about personal pensions is they’re flexible, so if one month you decide to pay £50 and the next £400, it makes no difference to the contributions. Popular personal pensions are with companies like PensionBee and Wealthify.
What happens when I'm eligible?
Once you reach your 55th birthday, you’re entitled to start drawing down your pension. You can withdraw 25% of the total amount tax-free in one lump sum or in instalments that add up to the 25%.
It makes no difference in the size of your pension pot, which could be a few hundred pounds or a million.
From there, you can either take it all in one go which can have higher income tax implications or leave it invested and drawdown your pension over time.
If you decide to take it in one go, remember that you’ll be subject to income tax, so if you’re still working, you’ll need to check you’re not pushing yourself into a higher tax bracket.
If you’re retired, then these brackets will be lower as it’s essentially back to the income tax brackets we have in employment.
If you want to pay less tax, it’s best to leave it (minus the 25%) and drawdown your pension over time. Also, leaving it allows your pension to continue growing, giving you more money to take as you age.
If you really need it, then you can dip into it anytime. Once you’ve passed that age threshold, the money is yours to do as you see fit.
How to avoid pension scams?
Now, this topic has to be covered. If you’re offered something that feels too good to be true, it most likely is.
Look out for things like ‘pension release ideas’ or ‘free pension audit’. These companies are trying to get your money by having you sign up for bogus products and transfer your pension pot to them.
There are instances where companies will charge you 20-30% on top of the 55% tax bill you face. So essentially, you’re giving away 75-85% of your money to get it early.
If you find someone willing to do this, then they are 100% not backed by the FCA; therefore, your capital is at risk.
It would be a shame to reach retirement and you’d given away your life savings to a scam artist, so please be careful out there!
FAQS
Can I take my state pension early?
Unfortunately not. Your state pension doesn’t abide by the same rules as personal or workplace pensions, and you’ll need to wait until you’re 66 (soon to be 68). The state pension is a weekly payment for you if you’ve paid national insurance contributions throughout your working life. It’s not a lump sum of money available to you like a personal pension so remember to factor that in.
Can I transfer my pension to my bank account?
If you meet the requirements to withdraw from your pension scheme, it can be withdrawn to your bank account. Once you reach the right age, you can use the money how you see fit but always check with your provider about the best way to drawdown your pension.
Can I use my pension to buy a house?
Yes, once you reach 55, you can use the money to buy a house. It is your money to use how you see fit, and there are no restrictions on what you can and can’t buy. If you’re looking to buy a house with your pension money, consult your pension provider and bank to understand the best way to do it.
Can I take money out of Nest before I’m 55?
Technically yes, but you will be required to meet specific requirements such as severe illness or being given under a year to live. If you do not meet these requirements, then you will not be able to access your Nest pension until you’re 55 (soon to be 57).
Conclusion
We hate to be the bearer of bad news, but as you’ve read, it’s only possible to access your pension early by meeting specific requirements.
There are ways we’ve discussed, but there are either considerable tax implications or possibly fatal illnesses at play which is not ideal.
If you’re worried about money, and that’s why you’re reading this, then there is plenty of money advice available at Citizens Advice.
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Disclaimer: Content on this page is for informational purposes and does not constitute financial advice. Always do your own research before making a financially related decision.
