Withdrawing Money From a SIPP

If you’ve already got a self-invested personal pension (SIPP) set up, or are thinking about starting one, you may be wondering how the withdrawal process works.

This guide covers all the essential details you need to know about SIPP withdrawal rules. We’ll explain if there’s a penalty for taking money out of a SIPP before the age of 55, how much you can withdraw each year, and also the tax you could pay.

Keep reading for a complete breakdown of SIPP withdrawals or click on a link below to jump straight to a section…

When can you access your SIPP?

The current SIPP withdrawal age rules mean that you have to be at least 55 to access this pension pot. However, this is due to change, and from April 2028 you’ll need to be 57 before you can begin taking money out of your SIPP. Once you reach this age, you can access your SIPP and start withdrawing funds from it, even if you continue working.

Can you withdraw money before you’re 55?

Yes, this is sometimes possible. It’s not illegal to withdraw from a SIPP early. However, because it’s a retirement product, the current withdrawal rules and penalty structure means that it’s likely not in your financial best interest to begin taking money out of a SIPP before 55 (or 57 when the withdrawal age goes up).

Also, some SIPP providers will not allow early withdrawals. This is done to protect your pension, but it’s always worth double-checking and getting specific advice related to your SIPP.

Early withdrawal penalties

The current rules mean that if you begin taking money out of a SIPP before the age of 55, the early withdrawal penalty in place states that HMRC will charge you tax at a rate of 55% on any monies you withdraw. So in most instances, early withdrawal is definitely not advised because you could end up losing over half of your SIPP pension in tax penalties.

If you need access to funds before retirement, it’s worth discussing your situation with an independent financial advisor. They’ll be able to take a complete look at your finances and then instruct you on some alternative ways to access money that do not involve dipping into your SIPP.

How to take money out of a SIPP

Once you’re approaching or have reached the appropriate age to start withdrawals from your SIPP, there are some important steps to take to help make sure the process is straightforward:

If you want to review your current and future pension prospects with an independent expert, just make an enquiry. We’ll introduce you to a retirement expert for free, and they can carry out a complete and thorough evaluation of your SIPP plans along with a free pension review.

How much you can withdraw each year

There are no strict withdrawal limits in place and you can take out as much money as you like each year. But, depending on how much you take out each year, there will likely be tax to pay at the marginal rate on your SIPP withdrawals as it would currently be classed as income for tax purposes.

SIPP tax-free lump sum

Once you reach the appropriate age of 55 (or 57 after 2028) to access your SIPP, you can, in most cases, withdraw 25% of the total value as a tax-free lump sum.

Do you pay tax on withdrawals?

Yes, you may have to pay tax on withdrawals from crystallised funds unless the amount is under your personal allowance tax-free income band. You can also withdraw 25% of the total initial pot as a tax-free lump sum, but any further withdrawals count towards your income for that year.

So, the exact level of SIPP tax you pay will depend on the income tax rules in place once you reach retirement age. This is why getting advice on the latest UK income tax rules before you start taking money out of your SIPP is so useful.

The exact level of tax you pay on SIPP withdrawals will depend on your tax bracket. Taking out more money could push you into a higher bracket, especially if you continue working once you reach the SIPP access age. So, this is definitely something to account for when you’re working out how much money you want to withdraw each year.

Speak with an independent pensions advisor who specialises in SIPPs

The withdrawal rules for SIPPs aren’t overly complicated but they can change over time. And, what’s most important is how taking money from your SIPP affects the rest of your finances in retirement.

The best way to get a proper financial plan as you approach retirement is to discuss your options with a knowledgeable independent financial advisor. Here at Online Money Advisor, we offer a matching service, which means introducing you to a specialist pensions advisor for free.

Just call 0808 189 0463 or make an enquiry. We’ll introduce you to an expert SIPP advisor for a free, no obligation chat and pension review.