- Taking cash out of your pension while still working can make financial sense
- You can also damage your future finances or make a tax mistake.
- The minimum age to access private pensions will increase from 55 to 57 years in 2028
Almost one in three people over 55 years of age withdraw their pension before stopping working, according to sector research.
Reasons for tapping into retirement funds include easing the path to early retirement, but a third said they needed the income, in some cases due to layoffs or to make up for reduced income.
About 8 percent of these “firsts” said they regretted it, according to the survey by financial services firm Just Group.
Pension withdrawals: Around 28 percent of people over 55 withdrew money before retiring, Just Group survey revealed
Withdrawing cash from your pension while continuing to work can make financial sense, especially if you want to pay off debt such as a mortgage, fund another cherished goal or can afford to start working part-time or a lower-paid job. before retirement.
But there are risks, especially if you damage your future retirement finances or make a tax mistake.
People approaching retirement should be aware that the minimum age at which they can start accessing private pensions will increase from 55 to 57 overnight on April 6, 2028.
This means people in their 40s and 50s need to plan ahead if they want to retire early or tap into pension savings for other important expenses.
It’s especially important to know the age rules on your work and other personal pensions, because some people will still be able to access their funds at age 55 depending on what they say.
Meanwhile, there is a significant tax restriction that comes into play when you start turning to a defined contribution pension, one that was invested to provide a large amount of money at retirement, rather than a defined benefit pension that pays a guaranteed income for life.
Once you take any amount above your 25 per cent tax-free lump sum, you will only be able to save £10,000 a year and still automatically qualify for valuable tax relief from then on.
This new, permanent limit is known in industry parlance as the “money purchase annual allowance,” or MPAA.
Just Group found that 49 per cent of people who accessed their pension before retirement, either by taking a lump sum or starting regular withdrawals, did not receive any advice or guidance before making the decision.
About 27 percent consulted a financial advisor, 12 percent talked to friends and family, and 9 percent read media articles.
Just’s survey revealed:
– About 28 percent of people over 55 withdrew money from their pension before retiring;
– Of this group, 32 percent needed income to close the gap until state pension age or due to dismissal or lower income;
– And 52 percent said they had retired earlier than they expected, although it was unclear whether the money withdrawn from their pension was key in helping them achieve this;
– About 45 percent of those who withdrew their pensions before leaving work said they simply withdrew tax-free cash, but a third did so to supplement their income;
– One in 10 early pension recipients used the free Government-backed counseling service. Wise pensioneither by telephone or in-person appointment.
Just Group surveyed around 1,000 UK adults aged 55 and over who were retired or semi-retired.
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“It appears that accessing pensions before retiring from full-time work is helping a significant number of people to cope with rising daily living costs and sudden or unexpected events such as redundancy or ill health,” says Stephen Lowe, director of Just Group. .
‘Whether taking pension money before retirement is a good or bad decision depends on people’s individual circumstances, but it is important to remember that pension money taken and spent before retirement will not be available to provide income later in life.
‘When times are tough, the pension fund may seem like an easy solution to an immediate problem, but it is important that it is not the default solution. People may have other options.”
Lowe offered the following advice to people who want to withdraw cash from their pension before they stop working.
– Check if state benefits might be available to provide additional income. See the chart above for This is Money profit guides.
– Discover how to make pension withdrawals in the most tax-efficient way.
– Take advantage of the Government’s free, independent and impartial counseling service. Regarding pensions, which can provide an overview of options before and during retirement.
– The governments money helper and charities such as Advice to citizens and Age UK can also help.
– Professional advisors will charge but can provide regulated advice along with information on benefit eligibility.
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