Can I cash in my
Pension early?

Guide to cashing in your pension at 55

Can I cash in my pension at 55?

If you are 55 or older and not currently paying into or receiving your personal or old company pensions,
you can cash in 100% of your pension as a cash lump sum – up to 25% Tax Free*

Cashing in your Pension Early

With the introduction of the new Pension Freedom Rules, introduced in 2015, you can now cash in your pension at 55.  The new rules give you the option to cash in part or all of your pension as a cash lump sum, 25% of which is tax free, and the rest of it would be taxed at your normal marginal rate of tax.  Alternatively, you can take part of your pension as a cash sum and use the rest to provide you with an income for life, which is also taxed as earned income.  This tax free cash sum is known as the Pension Commencement Lump Sum or PCLS.

The tax treatment would depend upon your personal circumstances and may be subject to change in the future.

The FCA has strict suitability rules when cashing in your pension at 55, for the most part, it is not advisable. This is due to the simple fact that your pension is there to provide you with an income for your retired life. Cashing in your pensions earlier than your pensionable age would almost certainly reduce your eventual retirement income.

Cashing in your pension at 55 is known as Pension Release; whether it is a Personal Pension or a Company Pension. There are many reasons why people want to cash in their pensions early, such as starting a new business venture, buying a house, moving abroadpaying off debts and credit cards.

You can cash in your pension even if you haven’t retired yet but need some cash now. If you’re 55 or over and have either a Personal Pension or old Company Pension you’re not currently receiving, you can cash in your pension even if it was originally set up to an older retirement age, of say 60 or 65.

The income you receive after cashing in a pension will depend on several factors including whether the money has come from a personal pension scheme or an occupational pension scheme. To an extent, you have much more choice about how the income will be paid from a private pension compared with an occupational scheme. You have the option of cashing in a pension without the need to take immediate income.

WARNING

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.

Types of Pensions you can cash in at 55

Below is a guide to the different types of pension you can cash in at 55+.

Personal/Stakeholder, Group Personal Pension, some Defined Contribution company pensions.

Definition: Money is paid by you and/or an employer, usually to a pension company.
The contributions are invested in a fund or funds and what you get will depend on investment returns and how much was paid in.

Can I just cash in and release a target sum of cash from my pension now?

YES – You can cash in any amount you need; however, it is likely you will need to transfer your pension pot into a new contract, which will allow you to take advantage of the new Pension Freedom rules.

There are a number of different options: you could take just the tax free part of your fund now (up to 25% of your pension pot), leaving the remainder to release at a later date (this part is liable for income tax*).

Alternatively you may want to release an amount that is partly tax free and partly taxed; it will depend on your current circumstances and future plans.

Can I cash in and release 100% of my pension fund as a single cash lump sum payment?

YES – You can cash in and release 100% of your pension pot as a single cash payment, usually from your existing contract.

25% is tax free; the balance is liable for income tax*.

With careful planning and forethought, spreading release of your payment over more than one year can sometimes save significant amounts of tax or the loss of state benefits.

Private Sector and Funded Public Sector Final Salary pensions

Definition: Also known as Defined Benefit schemes; these are typically provided by bigger employers, including Local Government (LGPS).

You are guaranteed a pension in retirement based on your length of service and earnings.

Can I just cash in and release a target sum of cash from my pension now?

YES – You can cash in and release any amount you need; however, it is likely you will need to transfer your pension pot into a new contract, which will allow you to take advantage of the new Pension Freedom rules.

There are a number of different options: you could take just the tax free part of your fund now (up to 25% of your pension pot), leaving the remainder to release at a later date (this part is liable for income tax*).

Alternatively you may want to release an amount that is partly tax free and partly taxed; it will depend on your current circumstances and future plans.

Can I  cash in and release 100% of my pension fund as a single cash lump sum payment?

YES – You can cash in and release 100% of your pension pot as a single cash payment; however, you will have to transfer your pension pot into a new contract, which will allow you to take advantage of the new Pension Freedom rules.

25% is tax free; the balance is liable for income tax*.

With careful planning and forethought, spreading release of your payment over more than one year can sometimes save significant amounts of tax or the loss of state benefits.

Unfunded Public Sector Final Salary Pensions

Definition: Known as Defined Benefit schemes, such as the NHS, Teachers’, Police, Civil Service, Armed Forces etc.

You are guaranteed a pension in retirement based on your length of service and earnings.

Can I just  cash in and release of cash from my pension now?

NO – These types of schemes are banned from transferring into a Defined Contribution pension and as a result are unable to take advantage of the flexibility Pension Freedom allows.

You are only able to receive benefits direct from the pension scheme and dependant on the rules of that scheme.

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Case Study: Cashing in your Pension Early

John has an old pension from when he used to work for his local council; it is a Local Government Pension, which has a Cash Equivalent Transfer Value of £40,000.

  • John Smith is employed on a salary of £24,000 a year
  • Married to Joan who works part time on a salary of £7,000 a year
  • John is aged 57
  • No dependents
  • No savings

These are extremely good pensions with guarantees of what they will pay at retirement and normally John wouldn’t even consider taking benefits from it early, however, John is behind on his mortgage and owes the company £4,000. He also has a bank loan of £5,000 and an overdraft of £1,000.

All these debts came about because he was made redundant over a year ago and he has only just found new employment. He and his wife did have some savings but these have all been used up. He is making payments on his mortgage and bank loan now but the mortgage company are saying that if he doesn’t pay back his arrears they will reposes his house.

John and Joan have tried getting a consolidation loan but can’t because they have a bad credit rating; they’ve even spoken to Citizens Advice but they couldn’t help. None of their friends or family are able to help them either and every bit of money they earn each month goes out again just on living. It’s not as if they have luxuries they spend their money on that they could cut back on.

They have basically tried every avenue possible to try and solve their problem and it is only because they have exhausted every other option that they are now considering using John’s pension.

John is unable to take benefits early direct from his Local Government Pension Scheme so he is going to transfer it into a Personal Pension. He is then able to release 25% of the transfer value as a Tax Free Cash Sum, which is £10,000, leaving the rest of the money invested in his Personal Pension to take as an income when he eventually retires.

Transferring his pension means he has now lost all the very valuable benefits and guarantees that he would have got with his Local Government Pension Scheme and there are charges and costs involved with the advice he has been given and to set up the new plan.

However, John will still get a pension when he retires, albeit smaller than he would have otherwise got, and he and his wife can stay in their home and clear all their debts.

He made sure he fully understood what guarantees he was giving up and all the costs, charges and risks he would be taking by going ahead with Early Pension Release, this enabled him to make an informed decision.

Cashing in your Pension Early – Frequently Asked Questions

Can I still work after cashing in my pension?
Yes you can still continue to work after you cash in your pension.

Can I cash in my pension before 55?
Yes you can cash in pension before 55. However only in exceptional circumstances, such as serious illness.

Can I take my pension as a lump sum?
Yes you can take your pension as a 100% cash lump sum. The first 25% is tax free.

How much tax will I pay if I cash in my pension?
The first 25% is tax free, which will not use up any of your Personal Tax Allowance. The rest will be taxed at your normal tax rate.

How long does it take to cash in a pension?
Once we have received your authorisation it normally takes round 4 to 5 weeks. However it can take longer, it is very dependant on your pension provider.

Can I cash in my pension to pay off debt?
Yes you can cash in your pension to pay off debts. See our guide paying off debts with your pension.

Need advice on cashing in your pension early?

It’s free to find out your options 

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

We are financial advisers specialising in helping people cash in their pension early and have been doing this for many years now, long before the Pension Freedom changes came into effect.

We have provided professional advice to thousands of people over the years.

Our service allows you to evaluate your Pension Freedom options without paying a penny. It’s only if you decide to go ahead with releasing all or part of your pension pot that you pay a fee. You are under no obligation to go ahead if you don’t want to.

Get Started Today and receive our free Information Pack on Cashing in your pension at 55.

Testimonials

I found your service to be very professional. The people I had contact with were very patient and understanding.

Mr DW, Bradford

Grove made all aspects of the pension release process very clear and precise, and kept me up to date on what stage my pension unlocking was at. Very professional at all times.

Mrs MR, Glasgow

Grove Pension Release provided a very proficient service regarding my pensions review and pension release. My future pension needs have been fully reviewed and look forward to your support and working together in future years.

Mr RH, Witney

Your staff were very helpful from the start and very professional in their approach to what is a complex field. I would recommend your services to anybody.

Mr AS, Oxford

I did not think such a good service existed but it does. Grove customer service really does look after the customer.

Mr RW, Bedford

I had no pre-knowledge of what would be involved in pension release so I was pleased by the professionalism and friendly service offered by your organisation, things were explained in a clear and concise way so I would have no hesitation in recommending your services to other people.

Mr KH, Sunderland

The advice I received was excellent. Each time I didn’t understand something I made a phone call. I was never felt to feel like a nuisance (which I know I was!) and everything was simply explained to me. Thank you – what a wonderful team!

Mrs UA, Wigan

A very clear, understandable and efficient service. All staff were friendly and knowledgeable.

Mr RP, Sheffield

At all stages I was completely satisfied with the help I got. At every stage I was made aware of any pro’s and con’s of pension release.

Mr JE, Maidstone

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