When Can I Take My Personal Pension?
Whether you’ve been saving for your retirement for years or only just starting, it’s always helpful to have a clear idea of when you might be able to start to benefit from your efforts.
This article will look at when you can take money out of your personal pension, how you go about claiming your pension and how you receive the money you have invested.
When can I take money from my personal pension?
Assuming your pension has Pension Freedoms features, the earliest age you can take money out of it without some pretty serious tax charges and fees is 55. If you want to withdraw money from your pension before 55, you should seek expert advice first.
There are, however, specific circumstances where you withdraw money without penalty before 55.
You may be able to withdraw money from your pension early, and without penalty, if:
- You’re unable to continue working due to ill health
- Your occupation means you can’t work beyond a certain age, for example, you’re an athlete, model, dancer or a member of the Reserve Forces
- Your pension is listed in the Registered Pension Scheme, such as the Armed Forces Pension Scheme
If you’re trying to work out when you can afford to retire, talk to one of the pension experts we work with. They will review your pensions for free and advise you of the projected income you may be able to expect to achieve with the pension savings you are making.
Make an enquiry for a free, no obligation chat and we’ll match you with one of the independent advisors we work with.
How do I claim it?
Approximately six months before you can start taking an income from your pension you’ll receive paperwork from your pension provider.
The documentation will explain when you can start getting your monthly pension income and ask you about whether you wish to withdraw the 25% tax-free lump sum payment.
How does it payout?
You can choose to take your pension through your pension provider or an insurance company. You should ask your pension provider what your options are, however most pension schemes will allow you to take up to 25% of your pension pot as a tax-free lump sum. You can start withdrawing the remaining 75% as income in the following 6 months.
If you take the 25% tax-free lump sum, you can take the remaining 75% by:
- Buying an annuity with some or all of your pension pot
- Investing the money in a fund which is designed for withdrawals – known as “drawdown”
Depending on the type of pension you have, it may be possible to take cash directly from your pension without needing to draw down or buy an annuity.
If you can withdraw directly from your pension fund you’ll have three options:
- Take the whole pension as a cash sum (only 25% of this will be tax-free, the rest will be taxed as income and may push you into a higher tax bracket)
- Take small regular cash withdrawals (your pension provider will probably charge a fee for each withdrawal, which could add an unwanted cost)
- Pay money into your pension (you’ll pay tax on contributions over £3,600)
How much can I take?
The sums you can take from your pension will depend solely on the amount of money you have in your pension pot. Although you can influence the amount you might get whilst you save for your retirement, how much you get out will depend on:
- How long you have been saving into your pension fund
- How much your regular contribution amounted to
- Whether you have had additional contributions from your employer or someone else close to you
- The performance of the fund your pension has been invested in
- The level of risk you agreed on
Can I cash it in early?
You can, but if you are considering cashing in a personal pension fund before age 55, stop and think first. There are some important factors to take into account because, as a highly regulated financial product, there are strict rules about how they can be used.
If you cash a pension in before age 55 you’ll face 55% tax.
It is a legal requirement for your pension provider to inform HMRC about early pension withdrawals. HMRC will chase you for the 55% tax charge and you will be forced to pay up.
The rate is 55% for anyone cashing in a personal pension before the age of 55, regardless of what level income tax you pay.
What other charges will I have to pay?
On top of the high tax bill, it’s likely you will also be faced with penalty charges and fees from your pension provider. You might even find you have to employ and pay an outside agency to help you access your funds, due to the complexity of pension rules and regulations.
When all is said and done, the amount of money remaining after penalties, fees and tax have been paid, may leave you wondering if it was really worth it.
If you are still considering cashing in early, seek professional advice first. The pension experts we work with will talk through your circumstances and help you understand the consequences and likely financial outcome.
Make an enquiry for a free, no obligation chat and we’ll connect you with one of the experts who can help.
What are the withdrawal rules?
Most personal pensions allow you to start withdrawing from your funds when you reach age 55. Once you are 55 you can start making withdrawals at any time, without penalty although you should check with your pension provider to ensure that your pension didn’t come with other rules.
It’s possible to set a retirement age when you set your personal pension up and this will still stand, so it’s worth making sure you’re not breaking this agreement if you are now considering an early retirement.
As already mentioned above, you can take your pension pot as a 25% tax-free lump sum with the remainder taxed as income.
What are my options for fund withdrawals?
Once you have withdrawn your tax-free lump sum, you have to start withdrawing the remaining 75% of your fund within six months.
The remaining money will be taxed as income and there are several options for how you can withdraw the funds from your pension pot:
- Take it in cash, you can take the whole remaining pension fund as cash, either in one go or a bit a time
- Buy an annuity to provide guaranteed income for life or a fixed period
- Invest it to get regular, flexible income, this may be referred to as flexi-access “drawdown”
You can choose all of these options and split your pension funds to do what makes the most sense for you and your own circumstances.
A kind of pension mix and match where you get to choose how much money goes to what to entirely suit yourself.
If you choose to keep saving into your pension you can do so with tax relief on contributions up to the age of 75.
How you choose which option, or combination of options, are right for will probably depend on:
- How old you are when you start drawing your personal pension
- Your state of health
- When you stop work, or reduce time spent working
- If you have dependents, who rely on you financially
- How much income you need
- Your appetite for risk
- The size of your pension fund and other savings you may have
- Whether you expect your circumstances to change
- Any pension or savings your spouse or partner may have
What are the options for drawdown?
It’s possible to move your whole pension into drawdown in one go, or split it up and move it across little at a time. If you move it a bit at a time, the remaining funds stay invested. You have complete control over how much income to take (reliant, of course, on the total available pot) and when you decide to take it.
Your pension provider may offer drawdown and, if so, you can apply to them to make the arrangements. Otherwise you can transfer your pension to another provider who does drawdowns. If you need to move your funds, or decide you want to, check that you won’t be subject to fees or penalties for exiting your scheme or that you won’t be walking away from additional benefits you may not get elsewhere.
How much income will I get?
The value of benefit you can draw from your personal pension will depend on how much you have in your pot, and the circumstances in which you start drawing it.
When you drawdown your pension and start getting an income, how much you take and when is entirely up to you. It’s possible to only take your 25% tax-free cash and leave the remaining pension fund in tact.
If you do need, or want, to start drawing income from the remaining funds you can make regular withdrawals or simply take money out as and when you need to. The choice is all yours.
After the 25% tax-free sum, all other pension income will be added to any other income you receive and taxed accordingly.
If you have a large pension pot, you might want to take care not to withdraw so much in any one tax year that it tips you over into paying higher rate tax, although you may find this is unavoidable in certain circumstances.
One of the biggest benefits of pension drawdown is the fact that your funds are invested and so, if funds perform well, you could reap the rewards and see your income continue to grow.
Although, as with any investment, there’s no guarantee because the value of shares may fall, and you could get back less than you invested.
The range of investments available is wide and your circumstances and appetite for risk are likely to play a big part in where you decide to invest. For expert independent advice, make an enquiry and we’ll connect you with one of the pension experts we work with.
All the advisors we work with are independent financial advisors regulated by The Financial Conduct Authority and so you will be dealing with a highly trained person who adheres to strict rules of conduct.
Can I claim my personal and work pension?
Many work pension schemes set an age, often between 60-65, when you can access it, so you may have access to your personal plan ahead of your work scheme. Once you reach the age where you’re allowed access, there’s nothing preventing you from benefiting from both the pension funds you have built up over your working life.
Your employer or pension provider will be able to tell you what age you must be to access the work pension and whether there are any rules whereby you may be able to have early access without penalty.
Speak to an expert
Planning for your retirement is exciting but also full of potentially costly complications so it is wise to take expert advice before you commit to a decision about how you want to take the pension investment you have spent your working life accruing.
The pension experts we work with are independent financial advisors with access to and knowledge of all the pension products and providers across the entire UK.
They can answer your questions and help you figure out the best income options for your circumstances. Their expertise means they are well placed to help you ensure that all your hard work pays off.
Call 0808 189 0463 or make an enquiry for a free, no obligation chat. We’ll match you with an expert experienced in helping customers with similar needs and circumstances.