Can I cash in my pension early?

Zorica Lončar
3 minute read

If you’re thinking of cashing in your pension before you reach retirement age, there are a few important things to consider. For example, how much tax you may pay and how you’ll manage financially in later life without the regular income a pension can provide.

This is why it’s always a good idea to seek professional pensions advice, to help you make the right choices.

In this handy guide, we’ll answer some of the main questions you’re likely to have about cashing in your pension.

And if you’re planning to cash in a pension from another country, make sure you use a money-saving tool like Wise. Open a multi-currency account and you’ll be able to receive your pension in the local currency, and you can convert to GBP at a far better exchange rate whenever you’re ready.

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But more on this later. Let’s get back to what you came here to read.

Is it possible to cash in a pension early?

Each pension scheme will have a set age when you can start to take your pension. This is usually related to the state pension age, around 60-65 years old.

But under rules introduced in 2015, you can take out your whole pension pot once you turn 55 years old. This means a cash lump sum, but no regular income in retirement - which could increase your risk of running out of money in later years.

There are also tax implications to consider. 25% of the money you withdraw is tax free, but you’ll be taxed in the normal way on the remaining 75%¹. This means a fairly whopping tax bill to pay all at once, depending on the size of your pot.

Can I cash in my pension early - under 50?²

If you do a quick search online, you’re likely to find a large number of companies and websites offering ‘pension release’ or ‘pension unlocking’ services. These companies offer to help you access your pension early, under the age of 55.

It isn’t illegal to withdraw your whole pension before you reach the age of 55, but there are a few compelling reasons to avoid it.

For starters, it isn’t always possible to do. Most pension schemes won’t let you cash in your pension unless you meet certain conditions, such as if you’re seriously ill or joined a pension scheme at a time when the ‘protected pension age’ was lower.

If you do manage to take your pension pot out early, you could face an eye-watering tax bill. HMRC may consider this an unauthorised payment, outside of the tax rules, which means a tax charge of 55%³.

Lastly but just as importantly, there’s a high risk that ‘pension unlocking’ services could be a scam. This could mean you could lose all of your money. If in doubt, take a look on the Pension Wise website or seek pensions advice before going ahead.

Can I cash in my NHS pension early?⁴

If you work for the NHS, or used to and have an NHS pension, you can withdraw your pot from the minimum pension age.

However, there are a couple of options for early retirement, for people who joined certain schemes at certain times. For example, if you joined the 1995 Section scheme before 6th April 2006, you can withdraw your pension from age 50.

Remember that if you do choose to take early retirement, your pension may be reduced.

Wise - a money-saving solution to receive international pensions

If you have a pension in another country or currency, you can avoid unfavourable exchange rates by using a Wise multi-currency account. This gives you far better control over the exchange rate and ultimately, how much pension you receive.

If you’re cashing in or receiving a regular payment, you can get it in the local currency and avoid the mark-ups usually added to exchange rates. Once it lands in your Wise account, you can convert to GBP at the real, mid-market rate, for just a small conversion fee. Depending on the size of your pension, this could save you a small fortune.

Your money is fully protected in Wise, as it’s regulated by the FCA and has sophisticated security measures in place.

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It’s completely your decision whether or not to cash in your pension early. Just remember to check out all the implications before going ahead, and get impartial pension advice if you have any questions or concerns.

Sources used for this article:

  1. Money Advice Service - taking your whole pension
  2. Pension Wise - pension before 55
  3. Money Advice Service - pension release/pension unlocking
  4. NHS - applying your pension

Sources checked on 15th April 2021

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date.

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