Is pension release legal?

This guide explains the basic rules around taking money out of your pension, including the types that do not allow it and how to avoid losing your money to scams. Towards the end of this page you will also find answers to some of the common questions people have.

The headline facts

If you have the right kind of pension, you can usually make withdrawals from the age of 55.

  • There are no restrictions on how much you can take.
  • The first 25% is tax free; the rest is taxed as regular income.
  • Certain workplace pensions may have their own age restrictions so it is worth asking your HR department if you are unsure.

What are the right kinds of pensions

Withdrawals can be made from any private pension and most workplace pensions, although if you are in a scheme that offers a guaranteed income in retirement you may have to transfer to a private scheme before you can take any money from your pension.

You can no longer withdraw lump sums or transfer out of unfunded public sector schemes, which may include emergency services, the NHS, armed forces, civil servants and teachers. Pension release also does not apply to the State Pension.

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Can money be withdrawn before 55?

For the majority of people the earliest money can be taken from a pension is from the age of 55. It is only in very rare circumstances, such as extremely poor health, that people are allowed to access their pensions earlier.

Are there any risks with pension release?

Some pensions, such as final salary schemes, offer a guaranteed income for life as well as additional benefits. Transferring out of this type of scheme to release money might not be the right option for you because you will lose these benefits.

There is also the risk of falling victim to a scam. The easiest way to protect yourself is to only take regulated financial advice. Scams can be very convincing and often claim that with a loophole you can withdraw money from your pension before you are 55. This could lead to a tax bill of 55% or more, on top of the fees you would be charged from the company that persuaded you to access your pension in the first place. Worst of all, your savings could be placed into very risky investments or disappear completely.

Everyone’s circumstances are different, so accessing a pension early is not always the most appropriate option. 

Is pension release legal?

Why are my withdrawals taxed?

The great thing about pensions is that most people pay no tax on the money contributed to them. Any growth on those contributions is also tax free, which helps your fund grow larger in a shorter space of time. Instead of taking the tax upfront, the government counts the money you take out of a pension as earnings and applies tax at that stage.

Can I take money from my public sector pension?

This depends on the type of public sector pension you have, as some of them allow money to be taken out and others do not. People in ‘unfunded’ pensions will not be able to take money from them before they retire. If you are unsure what type you have then your employer should be able to tell you.

Won’t taking money from my pension mean I have less to live on in retirement

Quite possible, yes, taking money from your pension could reduce your income in the future; although, for many people using pension money to tackle something now makes perfect sense. In our experience, some of the common things people use their pension money for include clearing a debt, making essential home repairs or paying towards a family wedding.

There is a lot to consider, which is why taking advice from a regulated financial adviser before making a decision is so important. The key thing is to balance the importance of your current needs with what you may need in the future.

A quick reminder that the tax you pay depends very much on the current rules and your personal circumstances, and so could change in the future.

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