Can I Withdraw My Pension Before Turning 55?
LEARNING OBJECTIVES
At The Wealth Genesis, we’re passionate about empowering our clients with the knowledge and knowhow to navigate life abroad.
IN THIS ARTICLE, YOU WILL LEARN THE FOLLOWING:
What early pension access means
The rules for accessing your UK pension
The circumstances for accessing your pot before age 55
Early Pension Release
Early pension release relates to taking money from your pension plan before age 55. Whilst it can be possible to access your pension pot before 55, this is only under specific circumstances. If you withdraw money outside of the rules, you'll be charged a high tax penalty.
Flexible Access Draw-down
Under the Pension Freedom Act 2015, members of defined contribution schemes ages 55 and above, have greater flexibility in accessing their pension funds.
If you don't have a Protected Retirement Date or are not severely sick, members under 55 (57 from 2028) are not allowed to take out money from their pension early without facing a penalty of up to 55% of the withdrawal sum.
Can You Take Money Out Of Your Pension Before 55?
Pension Release at 55 under flexible access drawdown allows you to access your pension in any way you please. The initial 25%, known as a Pension Commencement Lump Sum PCLS will be paid tax-free. Note this is tax-free in the UK with the relevant tax due in your country of residence. Some countries do allow preferential tax treatment on lump sum withdrawals.
Thereafter, you can take regular monthly income and ad hoc lump sum withdrawals. All pension income will be taxed in line with your country's income tax bandings. The tax due will be dependent on the total amount taken that tax year and any other income you earned.
We always recommend taking tax advice from a regulated local expert before taking pension income. The tax implications vary per country and your personal income levels.
Pension Release Under The Age of 55
Should you access your pension before age 55 without special authorisation as detailed below, you will incur a tax charge of up to 55% on the total withdrawal value.
Furthermore, any organisation or person claiming that you can tap into your pension before the stipulated age, typically by moving it to a foreign scheme, is likely a pension scam.
Despite the FCA implementing numerous conditions in the pension transfer procedure to safeguard members from fraudsters, numerous incidents still occur. Therefore, be cautious of anyone claiming you can withdraw your pension prematurely.
Reasons To Allow Access To Your Pension Before Age 55
There are two circumstances when you can access your pension early.
Protected Retirement Age (PRA)
PRA applies to pension members whose careers often involve early retirement such as military services or professional sports players. Without PRA, the standard pension access age of 55 (57 from 2028) will apply.
Note that PPA is applied on a scheme-by-scheme basis. As such, you may have it on one scheme but not another.
Ill Health
Should you be dealing with severe health problems that prevent you from working, or if you are under 55 and have a terminal disease with a life expectancy of less than a year.
Expat Wealth Management
The Wealth Genesis is a cross-border expat financial advice company. We help expats with both personal pensions and workplace pensions. After understanding your requirements through our customer discovery meeting we can implement a financial strategy to provide you with peace of mind in your retirement years.
Whilst it may be an attractive option to access your pension early, unless you meet the stated criteria, it is not an option.
Before making any important financial decisions you should speak to a regulated wealth manager and impartial government organisation such as Pension Wise.
FAQs
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Contact your scheme administrator or speak to Moneyhelper who you can contact on 0800 011 3797 or use their webchat.
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Pension Commencement Lump Sum PCLS and drawdown - Take up to 25% of your tax free lump sum (usually taxable in your new country of residence) and draw down the remaining as regular or ad hoc income as needed.
Lump Sum Withdrawal - Encash the full pension in one go. Note without an NT code, tax will be held back by your pension scheme in line with UK income tax brackets
Enter Drawdown whilst leaving the money invested - Take either your PCLS or taxable income and leave the remaining pension invested.
Note, as you are not a UK resident we are unaware of any scheme that will allow you to buy an annuity.
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Pension scams continue to rise both inside and outside the UK. Scams vary but most involve the scammer making a promise about guaranteed returns, early access to your pension, a free pension review, or upfront cash.
You can find more information on how to spot a person scam here.
