Can I cash in my
pension to pay off debt?

We have the answers

Using your pension to pay off debt

If you are aged 55+ and have a personal or company pension you are not currently paying into or receiving, you can cash in 100% of your pension as a lump sum. 25% would be tax free and the balance is taxed at your marginal rate.

How to clear your debts using cash released from your pension.

The Pension Freedom rules introduced in 2015 now allows people to access their pension funds early and use the cash to pay off debts, especially if the cost of servicing the debts is spirally out of control. There are many reasons why people find themselves in debt, such as ill health, redundancy, bankruptcy or even divorce.

You can use your pension to pay off ANY debts if:

  1. You are age 55+.
  2. You have a Personal Pension or Company Pension you are no longer paying into or taking.
  3. You can be employed and continue to work.

Type of Pensions you can cash in to clear your debts:

  1. Defined Contribution Pensions – Company, Personal, Stakeholder and Group Personal Pension.
  2. Defined Benefit Schemes – Private Sector and Funded Public Sector Final Salary Pensions.
  3. Funded Local Government Pension Schemes (LGPS).

Does not apply to the State Old Age Pension

What are your options?

There are several options available to you:

  1. You can take a 100% cash lump sum – the first 25% is tax free. The rest is taxed at your marginal tax rate applicable at the time you take it, which could change in the future.
  2. Transfer your fund to a UK approved pension contract that gives you control over your money. You can then access your money when you need it, similar to using a bank savings account.
  3. Leave the rest invested in a trusted scheme to provide cash for another time.
  4. Transfer your pension to a scheme that will allow you to pass 100% of your fund to your beneficiaries in the event of your death. Death Benefits are paid free of tax if you die before 75; death after 75 is taxed at the beneficiary’s marginal rate


This service only applies to pensions in the UK. Taking benefits early will almost certainly reduce your pension income in retirement and is only suitable for a limited number of people and circumstances. This should not be seen as an easy option for raising cash.

If you release all your money from your pension early you will not have anything left to provide you with income in retirement. Usually 25% of your pension can be released tax-free, the balance is taxed at your marginal rate at the time of release, this marginal tax rate could change in the future.



Get started today and receive expert advice from Grove Pension Solutions

You can find out your options for free, it’s only if you proceed to Full Advice that a fee will be charged.

Paying off debts with your pension case study

Here we take a look at an example of how funds acquired through Pension Release can be used to clear existing debts and plan for those unforeseeable emergencies that can and do crop up.

When Tom first looked into releasing some money from his pension, he was bankrupt, having had his catering business fail due to circumstances out of his control, and still left with an outstanding loan that hadn’t been covered in the bankruptcy. Between his wife and himself, Tom calculated that the couple’s total debts amounted to £9,400. Their wish was to pay off the debts then acquire more funds to put towards an emergency fund.

Tom initially looked into pension release as he thought that the three personal pension plans were too insignificant to provide a sufficient income in retirement, so he figured he could “cash up” and use the funds to assist in getting the couple’s life back on track. Tom considered the sacrifice of the pension funds to be a small inconvenience compared to the stress that the couple were going through at the time as they were unable to live within their means.

Our Advice

Grove Pension Solution’s advice in this situation was to transfer his three pensions into one plan, and as a result, a total cash amount of £13,365 was released. As income was not required, the remaining balance of the pension fund would be left invested to a later date.

The released funds provided Tom with enough money to clear the £9,400 debts he and his wife had accrued and still have money left over for their planned emergency fund.

Had Tom’s circumstances been a little different pension release may not have been suitable. For example, had he not been a bankrupt he may have been able to restructure his debts into one larger amount over a longer period, this would have achieved reducing the monthly cost of his debts, which in turn meant he could live within his means and therefore not require to unlock his pension. Or had his pensions been a company pension scheme the loss of what he would have otherwise got at retirement might have been too much to justify taking some cash out of his pension early.

Need advice on how to access your pension to pay off debt?

Grove Pension Solutions Ltd is regulated by the Financial Conduct Authority.

We specialise solely in Pension Transfer and Pension Release retirement services.

We were established in 2007 so have many years of experience successfully helping 1000’s of individuals. Some of them we advised to transfer their pensions and some of them we advised to leave their pensions where they are and not transfer them.

So why not Get Started Today and receive your free Information Pack.