Can I withdraw my pension?

9 min Read Published: 06 Jun 2024

Can I withdraw my pension?Whether you are approaching retirement or planning for the distant future, it is important to know when you can start to withdraw your private pension. Your pension will support your income in retirement, but it could also top up your wages towards the end of your working life or provide a lump sum for a big purchase.

There are multiple ways to use your pension pot and maximise the money you have saved over decades of working. However, your pension will likely need to last as long as you do. Making early withdrawals could jeopardise your later retirement years and even cost you the majority of your pot in taxes and fees. In this article, we explain when you can withdraw your pension and how to do it once you reach the right age.

When can I get my pension?

If you have a defined contribution pension, you can normally access your pot as soon as you reach the normal minimum pension age (NMPA) which is currently 55. This is due to rise to 57 from April 6, 2028.

If you have a defined benefit pension, when you can access your retirement income will depend on the specifics of your scheme, but you can usually begin taking it from age 65 or from the State Pension age. This is currently 66 but is due to increase to 67 by March 2028 and 68 by 2046. In some cases, you may be able to access your defined benefit pension earlier but this will depend on your scheme.

If you are eligible for the State Pension, this could supplement your income later in life and, as such, can be a factor in deciding when to withdraw your private pension. The full new state pension is currently around £11,500 per year. This amount increases year on year by at least 2.5% thanks to the triple lock.

Can I withdraw my pension fund while working?

You can withdraw money from a private pension while you are still working. If you have a defined contribution pension, you can usually begin to access it from 55. Taking your pension at 55 and continuing to work is often called semi-retirement or phased retirement. This could help you reduce your hours, take on different work or support your income in other ways.

You are unlikely to be able to claim the State Pension until a long time after you turn 55, so claiming your private pension could combine with your salary to support you until you reach the qualifying age for State Pension payments. You can find out more about the State Pension by reading our article ‘How much is the UK State Pension

Continuing to work would likely mean you need less money from your pension than if you are fully retired. This can help spread your pension pot over a longer period or even mean you can delay taking your State Pension, which would increase your payments later in life.

However, there are downsides to accessing your pension while you continue to work. We explore some of them below.

Affecting the investment performance of your pension pot

Taking money out of your pension can affect the performance of your chosen investments and limit the growth of your savings. The less money you have in the pot, the less interest or investment returns you will receive. The longer you leave it in there, the more chance it has to grow into a sizable pot thanks to the benefits of compound interest.

Running out of money in your older age

In addition, your pension savings will likely need to support you for decades. By delaying taking money out you can ensure it is there when you need it later. State Pension payments are unlikely to be enough to solely support you, so it is worthwhile making sure your private pension is sufficient to see you through your retirement.

Triggering the Money Purchase Annual Allowance

Before you draw down your pension, you can contribute up to £60,000 a year and get tax relief on your contributions. However, if you start drawing down your pension, you could trigger the Money Purchase Annual Allowance (MPAA) which will reduce this to £10,000 a year; this amount includes both your own contributions and your employer's contributions if you're still employed. The rule applies to defined contribution pensions rather than defined benefit pensions which work differently.

There are a few situations where this is triggered, but some of the most common reasons include:

  • You withdraw your entire pension pot as a lump sum
  • You start drawing down your pension after moving it to a flexi-access drawdown account
  • You buy a flexible annuity where your income could go down

Typically, you won't trigger the MPAA if you take your 25% tax-free lump sum. But amounts over and above this could well trigger it. This could affect how much you can save towards retirement in the future which could impact your overall pension pot in later life.

It's important to think about the factors above before deciding whether to withdraw your pension while you're still working. However, there are some cases where you might need to withdraw your pension early.

Can I withdraw my pension early?

The minimum pension age in the UK is currently 55, which means that withdrawing your pension early equates to accessing the money in your pension pot before you turn 55 (57 from 2028).

Taking money out of your pension too early can put you in danger of not having enough to see you through retirement, or ending up with an income too low to support your lifestyle. If you are under 55, it can also be very costly. You will be subject to a 55% rate of income tax and may need to pay a company an additional percentage to complete the withdrawal for you.

You can still access your pension earlier than your retirement age, so long as you are 55 or over. This applies even if you put down an older age when you initially started paying into your pension pot.

Can I withdraw my private pension before 55?

Withdrawing money from your pension before you are 55 is known as early pension release. While there are some exceptions, in most cases this will trigger a hefty 55% tax charge form HMRC on what you withdraw. Very few pension providers would let you make a withdrawal before you are 55 to avoid this charge.

Early pension release in exceptional circumstances

Withdrawing your pension before you reach 55 is not illegal, it is just very expensive and puts your retirement savings at risk. However, there are two exceptions where it could be authorised and you won't incur a 55% charge.

For example, if you are in poor health or suffer from a serious medical condition, you may be able to access your pension early without penalty from HMRC. Some people under 55 who have been diagnosed with a life-limiting condition that gives them less than a year to live can access their entire pension as one tax-free lump sum.

There are also a few professions – such as top athletes – where a guaranteed retirement date is specified in your contract, though the clause will need to be from before 2006.

Unauthorised early pension release

Most people wishing to access their pensions before the age of 55 will be judged as ‘unauthorised’ by HMRC and subject to the 55% tax. Some organisations will offer to help you access your pension early for a fee, but this is at best very risky and at worst a scam. They propose to function as a third party to access your money through your pension provider for a percentage of the withdrawal amount. Combined with the 55% tax, this could leave you with less than 20% of your pension pot.

What's more, if anything goes wrong you will not be protected under any Financial Conduct Authority rules. There are a whole host of pension scams out there, so it is best to deal with your provider directly and – unless you fall under any of the exceptional circumstances mentioned here – wait until you are 55 to access your pension.

Can I withdraw my workplace pension?

If your workplace pension is a defined contribution scheme, you will need to be 55 or over. Like with a personal pension, you can usually only access a workplace pension once you reach the minimum retirement age.

If you are old enough, contact your pension provider to see what withdrawal options are available to you. This could mean getting regular payments in the form of an annuity, taking out a lump sum, or continuing to invest the money and making regular withdrawals (pension drawdown).

With a defined benefit scheme you will be paid a regular amount each year, though in some cases you can also be paid a lump sum when you retire.

How to withdraw your pension when you retire

In the UK, you can usually only start using your private pension pot once you reach the age of 55, though many people will need to wait longer to let their savings build up. Withdrawing money from your pension is a pretty simple process once you are old enough. A defined contribution pension is the most common type of private pension scheme in the UK. It means that your retirement income will be based on the value of your pension pot – essentially what has been paid in plus the performance of the funds it has been invested in – rather than your final salary. Here are the most common ways to use your pension pot once you reach 55.

  • Withdraw a lump sum - The first 25% of your pot can be taken out tax free, while the rest will be taxable. You could choose to withdraw a fixed amount for a specific purchase or take the whole lot.
  • Purchase an annuity - This is a fixed-term or lifetime guaranteed income. It can give you stability in retirement by knowing how much you will receive every month.
  • Pension drawdown - Create a flexible income by taking money out of your pension pot at regular intervals, while leaving the remaining balance invested.
  • A mixture of all three - You might opt to take a lump sum, buy an annuity and leave some money in your pension pot to withdraw when you need it.

Check out our article on your pension options at retirement for a more detailed look at the best ways to withdraw your pension when you retire.

Transferring a pension

You could choose to transfer your pension to a different scheme if you are unhappy with the payment options available to you or would like to invest in different funds. Transferring your pension in order to consolidate multiple pensions could also be a useful way to keep better track of the performance of your retirement savings. We discuss this in more detail in our article on transferring your pension.

Some companies will help you identify any personal or workplace pensions you might have and move the pots into one account. You can find out what we think of a couple of providers offering this service in our ‘PensionBee Review’ and ‘Profile Pensions review’.

How to spot a pension scam

Withdrawing your pension comes with certain risks including the potential for pension scams.

Pension scams can be terrifying because they put you at risk of losing the money you need to support you once you give up working. Losing your pension can be catastrophic, so it is crucial to be aware of scammers looking to access your money.

The main tactic – as with many bank account scams – is for scammers to contact you with a warning that your savings are at risk. They may sound professional or even appear to be calling from your bank. They will pressure you to transfer your pension pot, or cash it in and then move it into a ‘safe’ account.

If you feel like someone is rushing you into making a decision to move your money into a high-risk investment or unregulated product like cryptocurrency, you are likely speaking to a scammer too. They could also try and persuade you that there are legal loopholes to avoiding the 55% tax rate and withdrawing your pension early.

It is illegal to cold call about pensions, so anyone ringing you up out of the blue is breaking the law. If you are concerned, put the phone down and speak to your provider directly.

Withdrawing your pension responsibly

There are many factors to consider when deciding when to withdraw your personal pension. Just because you can withdraw it at 55 doesn't mean you should. Doing so could impact your future investment returns and even affect how much you can save in the future.

There are some circumstances where it might make sense to withdraw a portion of your pension. But, before you do this, it's worth making sure that your pension pot will be sufficient for your retirement needs in later life. Nobody wants to run out of money in their old age and withdrawing your pension pot too early could result in a shortfall. If you are unsure if you'll have enough, check out our retirement calculator to see a projection of your income in retirement.