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Can I withdraw my pension before turning 55?

With so many people, “Can I withdraw my pension before turning 55,” we thought it was about time that someone came up with a definitive answer. We, therefore, decided to publish this article to advise readers about the rules regarding pension release, taxation, and when and how much you can withdraw.

Can I withdraw my pension before turning 55? – Summary Table

👶 Can I take money out of my pension before 55Yes, but you will pay a penalty fee
🔁 Can I transfer my pensionYes, you absolutely can!
⚠️ Is there a limit?No, but if you withdraw more than 25% of your pension savings, you will have to pay income tax
👷🏻 Can I work while drawing my pension fund?Yes, you can. It is possible, and many people do so

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Before we get into the pension nitty-gritty, let’s remind ourselves that if you have a private or workplace pension, you can start taking money from it at the age of 55. That age is due to change to 57 from 2028. At present, you are entitled to a 25% tax-free lump sum.

One of the pension options open to you is aiming to have enough set aside for an earlier than normal retirement age. Also, here are some tips and advice on how to retire at 55.

Trying to take your pension before you turn 55

Under normal circumstances, you will not receive any money from your state pension until you retire. The state pension age is currently 66, but there are plans to raise the retirement age to 67 in 2028. Therefore, even if you have to retire due to ill health, you cannot access your state pension before the due date.

Although, you could be able to claim Statutory Sick Pay for up to 28 weeks, and if your illness extends beyond that, you could be eligible for ESA (Employment and Support Allowance).

Can you take money out of your pension before 55 if it’s a private scheme? – Yes, you can. However, you’ll pay a penalty fee.

When you cash in pension before 55 (57 from 2028), you will get a 55% income tax bill from HMRC. Because of this, many pension providers will not accept your request. You can talk to a third party to see if they can help, but they could charge you a fee of up to 30%. So you might end up getting as little as 15% of your pension pot.

The other thing you have to be wary of when thinking of making a pension withdrawal before 55 is that many of the companies offering this service are not approved by the Financial Conduct Authority. You could be falling for one of the many pension scams.

Can I cash frozen pensions from old employers?

Under the Pensions Act of 1998, employers automatically enrol you in a workplace pension scheme.

It means that you might accumulate several pension pots throughout your working lifetime. You might ask yourself, can I withdraw my workplace pension from a previous employer, and the answer is yes, you can. However, the same tax charges apply if you try withdrawing money before turning 55. However, you do have other options.

Tranferring a pension

The more pensions you have, the more difficult it is to keep track of them, so you might want to think about a pension transfer. If you have lost track of any of your pensions, you can try using the government’s pension tracing service. If you can find what you’re looking for, check whether the pension in question is a defined benefit or contribution pension before attempting to transfer anything.

If it is a defined contribution benefit scheme, it may have unique benefits, so think before you act or seek professional financial advice.

If you are going to transfer pensions for amalgamation purposes, you’ll find some helpful advice on the Gov.UK website.

What to consider before asking can I withdraw my private pension before 55

Before asking yourself about withdrawing money from your pension, you need to review your retirement planning. Taking money out of pension funds early will significantly affect the amount you will be due when you retire.

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Withdrawing money from your pension at 55

As stated earlier, the answer to how much can I take from my pension at 55 is 25% of your pension savings without having to pay tax. Of course, you can take out more, but you will have to pay income tax on anything above 25% under the normal income tax band rates.

You must contact your pension provider if you want to take advantage of the age 55 tax-free sum you are entitled to. They will send you the appropriate forms to complete.

Continuing to work while drawing your pension

Taking 25% personal pensions cash from your pension when you turn 55 is only an option, but it is not obligatory. If you are reasonably well off, you can defer the age you receive a private pension, and some people do. The Choices open to you are:

  • Withdraw a part lump sum and leave the balance where it is.
  • Turn your pension savings into an annuity
  • Continue to work and leave your pension untouched

We touched on the topic of cashing in a pension at 55 or earlier, but what about continuing to work while drawing your pension fund?? Is it even possible?

The answer is, yes, you can. It is wholly possible, and many people do so. There is no longer a defined default date when you are expected to retire. It is down to the individual companies and their business ethics and practices. So you can continue to work after you’ve reached the state pension age if you wish and your company agrees.

You can cash out a pension or receive your state and private pension while you continue to work, but there are advantages and disadvantages. The advantage is that once you reach state pension age, you no longer have to pay National Insurance. The disadvantage is that all your income, wages, and pension are totalled to determine which band of tax you fall into.

Dealing with a pension deficit

Before we finish off this article on “can I draw my pension before 55,” let’s briefly discuss what to do if you have a pension deficit.

As far as your state pension is concerned, in order to receive your full pension, you must have paid sufficient National Insurance contributions. You might have a pension shortfall if there are gaps in your contributions over the years. You can check your state pension status by phoning or emailing the Future Pension Centre.

You can make up the shortfall if you so wish. To find out about getting advice, you’ll find contact details on the ADVICE NI page of the nidirect.gov.uk website.

Knowing how much pension you will need in your retirement years is difficult to predict, but plenty of helpful advice is available. For example, there is an informative article about what sort of pension you are likely to need and how to avoid a pension deficit on the Moneyfarm website.

Final thoughts

Making sure you have enough money to draw on in your retirement years is critical. You need to be aware of your pension options and seek professional financial advice.

If you’d like to find out more about pensions, the pension guide on the Moneyfarm website provides excellent additional information.

FAQ

Can I cash in my private pension before 55?

Typically, you can not withdraw from your pension before the age of 55. But, withdrawal exceptions depend on your health and pension scheme. For example, terminally ill individuals with a life expectancy of less than a year can withdraw from their pension before age 55. Also, early retirement due to poor health may enable you to qualify for an ‘ill-health’ pension which allows you access to your pension before age 55. Otherwise, unauthorised payments before age 55 come with tax implications, and most pension schemes will not let you take such an action.

Can you withdraw money from a private pension early?

Yes, you can withdraw from a pension early. The earliest you can withdraw from a private pension without a penalty is at age 55 (57 from 2028).

Can I take a lump sum from my pension before 55?

Yes, you can take out a lump sum from your pension before 55. But, any amount that is withdrawn from your pension before age 55 is subject to a 55% tax charge.

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