Can I Cash In My Personal Pension?

If you’re thinking about cashing in your personal pension, this guide is for you. Whether you are close to retiring and planning your retirement years or are wondering about using your pension pot to help yourself out of a difficult financial situation, there are some important factors to consider.

Your pension pot may be a considerable amount of money, but, as a highly regulated financial product, there are rules and regulations around how it can be accessed.

If you access it before the age of 55 you will incur significant tax charges and your pension company might also charge you highly if you withdraw money ahead of a specific date.

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Can you cash in a personal pension plan early?

Cashing in your personal pension early is possible, but highly inadvisable. Personal pensions are a highly regulated financial product with strict rules and regulations about how they can be used. If you are under the age of 55, it can be a very costly exercise to cash in your pension.

There are companies who will help you unlock or release your pension ahead of retirement, but they aren’t often regulated by the Financial Conduct Authority (FCA). This means that if anything should go wrong, you have no protection and no one to turn to for help.

On top of this risk, the charges associated with pension unlocking or pension release are exceptionally high.

The companies who arrange for people to access their pensions early charge rates at around 30% and, because you are not officially at retirement age, you lose all the tax benefits usually associated with pensions and will be hit with a whopping 55% tax bill, no matter what your income tax rate.

When can I cash it in?

Since new rules were introduced in April 2015 you can take the whole of your pension as cash in one go from the age of 55, without penalty, if that’s what you wish to do.

In certain circumstances, there may be some benefit in doing this, but, for the majority, it’s a risk you may not want to take since you may end up with a big tax bill and leave yourself short on income in your retirement.

If you want to take your whole personal pension as cash all you have to do is close your pension account and withdraw the whole pot as cash.

You will get the first 25% tax-free while the remaining 75% will be treated as income and taxed at normal income rates.

If you decide to go ahead and cash in your pension, even at retirement age, there are several important considerations to bear in mind:

  • You will no longer be using the funds to provide a regular income for yourself, or your spouse or other dependents after your death
  • 75% of your cash withdrawal is taxable income, this may mean that you will be taxed at a higher rate than you are used to
  • There’s no changing your mind later, once you have withdrawn your pension as cash it’s done and there’s no going back
  • Coming into a large amount of cash could make you less likely to be entitled to benefits in the immediate or longer-term as you grow older. If you needed help with long term care in the future, you may not have the same entitlement to financial help
  • Cashing in your pension to pay off debt or spend it on an expensive holiday or other costly indulgences will significantly reduce the cash you have available to live on during your retirement and you might end up with a hefty tax bill

When it comes to making decisions about your pension, it’s recommended that you get advice from a financial advisor before you take an action.

The experts we work with are independent financial advisors who are experienced in helping customers plan for their retirement years and ensure they take the right steps to securing an adequate income before they stop working.

Make an enquiry for a free, no obligation chat and we’ll match you with a financial expert with experience of helping other customers in similar circumstances.

Can I cash in at 55?

You can cash your whole pension in without penalty from age 55. You can take 25% of the cash tax-free but the remaining 75% will be taxed at normal rates, and could push you into a higher income tax bracket.

You should also be aware that cashing in your entire pension could leave you with less to live on during retirement.

If you wish to cash in your whole personal pension you should have a plan for how you’re going to provide yourself with an adequate income for your whole retirement.

You may wish to use the cash you take from your personal pension to buy an annuity or invest in another product designed for income, rather than growth, which is covered in the following section.

To discuss appropriate possibilities, talk to one of the independent financial advisors we work with. Make an enquiry and we’ll introduce you to an expert in pensions and investing for income.

They’ll be happy to answer all your questions and advise you of all the options which may be suitable for your circumstances.

Can I cash in at 50?

Cashing in your pension at age 50, or anytime before age 55, is not illegal, but unless you have very specific circumstances behind your reason for doing so it does tend to be widely inadvisable.

This is because it’s likely you will incur substantial costs from the pension company and in tax charged.

On top of paying any costs your pension company charge, you’ll find yourself facing a 55% tax bill on whatever you withdraw, regardless of the level of income tax you pay.

It’s a legal requirement for your pension provider to tell HMRC about your cash withdrawal.

HMRC will chase you for the tax you owe and you will be forced to pay up, even if:

  • You didn’t understand the tax rules
  • You offer to pay the money back into your pension
  • You’ve paid fees or charges to the company who arranged the cash withdrawal
  • You’ve already spent the money

There are firms who will arrange pension unlocking for people under 55, but they aren’t usually authorised by the Financial Conduct Authority (FCA). This leaves you even more exposed, should anything go wrong.

To give you a picture of the sort of costs you could face, here’s an example:

If you have a pension pot of £80,000 and cash it all in before the age of 55, you might pay 30% (£24,000) to the firm who organised things for you.

On top of this, you would have to pay £44,000 in tax (55% of £80,000). This means you will have to spend £68,000 before you’re free and clear with only £12,000 leftover.

Which is sobering.

Before making any decision about cashing in your pension before the age of 55 be sure to take expert advice. The independent financial advisors we work with are experts in helping people sort out their pensions and can help with all aspects of pension planning and providing an income in retirement.

Make an enquiry for a free, no obligation chat and we’ll connect you with a pensions expert who will be able to get an understanding of all your circumstances and advise you on the best way to make sure you have income for the retirement you hope for.

What to do if you want to cash in your personal pension

If you do decide to cash in a personal pension but also wish to ensure your future retirement income you have a couple of options worth thinking about:

Buy an annuity to provide a regular income stream

You can use your pension pot to buy an annuity which will give you regular payments for life. The amount of income you might be able to get will vary depending on how long the insurance company expect you may live and therefore how long the annuity will have to pay out.

This will be taken into account along with:

  • Your age and gender
  • The size of your pension pot
  • Interest rates
  • Your health

You can buy different annuities depending on your needs and circumstances. Since you’re not obliged to buy directly from the company providing your pension you should plan to shop around for an annuity which best suits your needs, as well as your available funds.

Invest the money in a pension drawdown fund

Your pension provider should be able to put your pension into a drawdown fund from which you can

  • Withdraw funds
  • Buy a short or fixed-term annuity which will provide regular payments for up to 5 years
  • Make payments in, although you’ll pay tax on any contributions over £4,000 in one calendar year

If you’re still keen to cash in your personal pension, the first thing you should do is seek professional, regulated advice.

Your pension company may require you to do this prior to releasing your pension pot to you.

The experts we work with are independent financial advisors with access to all the pensions and insurance providers across the UK…

Speak to a pensions expert

Call 0808 189 0463 or make an enquiry for a free, no-obligation chat. We’ll connect you with one of the pensions and retirement income experts we work with.

They will be happy to answer all your questions and give you advice based on your specific pension fund and income requirements. The service we offer is free and there’s absolutely no obligation to act on the advice you receive.

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

We can arrange a free pension review for you today

70% of customers who have a pension review find a better deal

Book a free, no-obligation pension review today