06 Jul 2018
Can I Cash in My Pension Early?
Since April 2015, once you celebrate the fine age of 55 you can withdraw all of a pension pot. Finally, you can touch the money you've spent your working years saving. This might be your private pension. It might be your workplace pension.
But, while this might sound like a great way to celebrate being one year closer to 60, a full pension withdrawal isn't necessarily the best idea. You could wind up facing a big tax bill, and you might run out of money later in life.
How Do I Withdraw My Pension?
To draw out your pension pot, you just close the pot with your provider and withdraw the whole load as cash. It's as simple as that. The first 25% of that pot comes to you tax-free, which is great, right?
However, you're going to have to pay tax and National Insurance on the other 75%. This is because it goes on top of your income. It all sounds less appealing already, doesn't it?
Well, it gets worse. Since 75% of your lump sum straps onto your income, your tax rate could increase, depending on what you earn and which tax band you're in. And you can't renege once you've decided to go ahead with this withdrawal.
But Can I Withdraw Money From a Private or Workplace Pension?
You can still withdraw money without taking the whole amount and closing the pot, yes. In fact, rather than the risky move of cashing in your whole pension early, you have a few other, potentially better options available to you:
- Leave your pot untouched. It’ll continue to grow, tax-free. Just because you’re 55 doesn’t mean you need to crack open the pot, does it? Why not wait until you retire?
- Use your pension pot to buy a guaranteed income for life—an annuity. Rather than having to manage a massive sum in one go, why not receive steady amounts of cash like you have all your working life? Read more about annuities here. Note, you will receive the first 25% as a tax-free lump sum.
- Take small sums out of your pot. Withdraw a small amount, and leave the rest to carry on growing, tax-free. 25% of each withdrawal is tax-free. Your provider might set limits on the number of withdrawals per year, and stipulate charges upon withdrawal.
Do I Have to Withdraw My Money When I Reach 55?
No, you can keep saving if you wish. And you’ll continue receiving tax relief until you reach the ripe old age of 75. There are many reasons why you might withdraw all, some, or none of your pot at a given time in your life:
- Your age.
- Your health.
- When you stop working.
- Pension pot size.
- Any other savings you or your spouse own.
- Financial dependants.
Always remember that each provider offers different terms, benefits, and charges, so be sure to review your paperwork and contact them about your plan before you make any big decisions.
Can I Cash in a Pension From an Old Employer?
If you leave a job and you had a workplace pension while you were there, that still belongs to you. You might no longer pay into that plan, but don't worry—you should be eligible to receive the cash in the pot once you reach the scheme’s pension age—which will usually be 55.
If you join a new workplace scheme, you may be able to combine your old and new schemes. You might even be able to recommence contributions into the previous scheme.
Again, you should speak to your employer, and the provider, who will be able to give you all the information you need. Finally, though, if you move job but pay into an old pension, you might not receive all of the scheme's benefits. Again, do your research.
Talk to an Expert at Croner
If you have any questions about your pension, get in touch with our team of reward experts on 01455 858 132.
Don't forget that you might also be eligible for the State Pension.
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