Can I cash in my pension early?

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 GBP, and convert to the local currency to make the most of your desired exchange rate whenever you’re ready.

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?

Wondering: ‘what age can I cash in my pension?’ and whether you can do it early?

Ultimately, 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.

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.

However, an important change is coming into effect in the next few years. The minimum pension age is increasing from 55 to 57 on 5th April 2028.¹

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%.² This means a fairly whopping tax bill to pay all at once, depending on the size of your pot.

Exceptions to minimum pension age rules

The changes to minimum pension age rules coming into effect in 2028 will affect everyone except:¹

• People born before 1971
• People born between 1971 and 1973 - this age group may be caught in a transitional phase, where they have access to their pension at 55, before losing it again when the changes come into effect. It’s best to check with your pension provider if you’re in this group.

Can I cash in my pension early - under 50?

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.¹

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%.¹

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 government-backed Money Helper website or seek pensions advice before going ahead.

If you’re still not sure, it’s best to steer clear. It’s just not worth risking what is essentially your life savings.

Can I cash in my NHS pension early?

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 50.³

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

Consequences of early pension withdrawal

The main consequences of early pension withdrawal include:

• A hefty income tax bill on the 75% of your pension lump sum that isn’t tax free
• No regular income, if you decide to take out a lump sum
• A potential 55% tax charge from HMRC, if you take out your pension before your minimum pension age.
• A reduced pension amount.

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 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 mid-market exchange 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 fully regulated and has sophisticated security measures in place.

Open a Wise account 🌍

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