When should you take out your pension?

November 30 2020 | Category: Money advice

Those of us in the latter half of our lives may be looking forward to withdrawing our pension. If you’ve been paying into a pension for a lengthy amount of time, you may be tempted to take it out as early as you possibly can to reap the benefits straight away. However, doing this comes with its own set of risks.

For starters, when is the earliest you can withdraw from your pension pot?

Under almost all circumstances, the earliest you can withdraw money from your pension is 55. This means that if you’re under the age of 55, you’re going to have to wait a little bit longer. Beware of potential fraudsters, some companies are now specifically targeting the under-55s, telling them they’re able to access their retirement fund.

As previously stated, this isn’t doable under normal circumstances. If you do end up withdrawing from your pension early, not only will these  companies charge a fee, which can be as much as 30% of what you withdraw, but your pension provider will also alert HMRC that money has been withdrawn from your pension, which  in turn means you will end up having to pay a tax bill of 55% of what you take out. This all adds up, you could end up having to spend 85% of the money you took out. So, in short, It’s just not worth it. It’s a lot smarter and safer to wait until you’re at least 55.

It can be quite difficult to spot these companies offering an early pension release, as they can look similar to the completely legitimate companies doing this for the over-55s. While these companies are not technically illegal, it can be considered fraud if they fail to mention the hefty tax bill that comes with an early pension release.

As alluded to earlier, it is technically possible to  withdraw from a pension before the age of 55 without the need for an early pension release company, but only under specific circumstances. This can be done if:

  • You are considered seriously ill and want/need to retire early.
  • You have a “protected retirement date” specified in your pension plan. This must have been granted before 6 April 2006 and is usually reserved for people who could not continue in their profession until normal retirement age.

Under both of these situations you would not need to use a pension release company as your pension provider will be able to arrange everything for you.

Another thing worth keeping in mind is that even if you are tempted to take out your pension as early as you can, this might not be the best option in the long term. The longer you pay into a pension, the more money you will build up. This means that there could be a substantial difference in pension pay-out if you took it out at age 55, compared to taking it out at age 65.

Not only that, but we are living longer today than ever before, which means that our pensions may need to last longer than they did in the past. This is yet another benefit to waiting to take out your pension. Not only will you have more money to withdraw, but you most likely won’t need to stretch it out quite as much as if you took it out at an earlier date. So, all things considered, while it might be tempting to withdraw from your pension as early as you can, it may be better in the long run to wait a little bit longer.

We understand that all of this can be confusing, and of course, every individual will be different, so these particular points may not be valid to everyone. If you’re concerned about your pension or want to know when is best for you to withdraw it, then please don’t hesitate to contact us here at Chilvester Financial. We will offer easy to understand, professional and unbiased information that could be just what you need. So, if you’re in need of some advice, guidance, or just want to discuss your pension with an expert, then arrange your free, no obligation consultation with us today.