Can I cash in my
Guide to cashing in your 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 Pension Freedom in 2015 you can cash in your pension early. The new rules allow you to release part or all of your pension as a cash lump sum. The first 25% of which is tax free and the rest is 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 abroad, paying 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.
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.
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.
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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?
Grove Pension Solutions Ltd is regulated by the Financial Conduct Authority.
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.
Pensions are an incredibly difficult subject to grasp but the team at Grove Pension Solutions went out of their way to explain, in plain English, the pro’s and con’s with regards to the pensions even if it meant that they wouldn’t get as much business. They really did put the client first which is a refreshing change to the financial culture of today. I was very happy with the service and satisfied that my pensions are in safe hands.
I found your staff very helpful and professional at all times. The advisor concerned did everything in his power to speed up the process as I had wanted to use the funds to attend my son’s wedding (abroad). The deadline was met and I was able to achieve my goal. The advisor went out of his way to ensure I was fully briefed and had considered all options before making my decision, thank you again.
I cannot praise your company enough. From the initial enquiry form to completion the whole procedure was absolutely first rate. Your staff are a complete credit to your company and it is impossible for me to find anything further to add. Superb!!
A very professional, yet friendly and personal service. I would strongly recommend your company to anyone interested in pension release. Many many thanks to all your staff for a service second to none.
After wasting so much time on sites belonging to “big players “. I selected an unfamiliar one belonging to Grove Financial and never looked back – excellent service and commitment.
I have already recommended your services to some of my colleagues. I was highly delighted with all aspects of the services I received. Thank you for a painless, understandable transaction.
I found Grove to be very professional people and very knowledgeable. The way they dealt with my pension release was second to none.
I found your service first class with friendly polite staff. All questions I had were answered. It was nice to be with a company that did not hard sell. Most refreshing.
I found your service to be very professional. The people I had contact with were very patient and understanding.
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