Can You Really Cash Out your Pension Before Age 55?
Who doesn’t want to take advantage of the money you’ve been
saving up almost all your life? It is your pension, after
all, so you should be able to do with it as you wish. But it is
this kind of thinking that could land you in big trouble.
Getting impatient and withdrawing your pension early can have
serious repercussions. You could end upusing your pension
needlessly, leaving you with nothing when the time comes to
retirement when you will need it the most.
You will also become vulnerable to what is known as pension
liberation, a scam that makes you believe you can cash out your
pension before you’re 55, but leaves out the truth about the tax
implications of a cashed out pension, and a possible problem with
The Truth about Your Pension According to the Taxman
Your Pension Fund is only
accessible at the age of 55
There might have been changes that came into effect on April
2015, but it never said anything about withdrawing from your
pension before you reach 55. The rule is clear – you can access as
much of your pension money as you like at the age of 55 and over.
But never earlier than this.
You will need to pay tax on an early cashed out pension
When you’re 55 or over, you can take a legal 25% lump sum from
your pension without paying tax. Yes, it’s totally tax-free. But if
you are withdrawing from your pension before you hit the big 5-5,
HMRC will consider it as totally unauthorised. The agency will then
slap you with a 55% pension tax. The pension liberation scammer, on
the other hand, will have to pay charges of up to 30%.
There are exemptions to the rule
There are certain circumstances when cashed out pensions that
are done earlier are considered perfectly legal. A good example is
when you are terminally ill. It’s not a particularly good
situation, but it’s good to know that you can rely on your pension
to pay for your medical bills. Still, it is highly recommended that
you seek financial advice before using your pension for medical
reasons. It is possible that you may be better off leaving your
pension where it is.
The Truth behind Pension Liberation
Pension liberation is different
from Pensions Liberation Day
The former is a scam, while the latter is a pre-advice file
check for pensions ready for access. Some people also call it the
day when the new pension freedom came into effect. It’s important
to know the difference, so you don’t get fooled by scammers.
The risks of a cashed out pension
Apart from the tax implications of a cashed out pension, you
could lose the remainder of your pension fund. Scammers can invest
it in unregulated, highly dubious and risky investment structures,
which can easily go south. That’s worse than paying
exorbitant pension tax.
Beware of pension liberation. But if you’ve already done it, you
should know that you have 30 days to you change your mind, since it
usually takes that much time to release your pension. Once the
money is out, you can reverse it by asking your old pension company
to reinstate your pension funds. Just hope they are willing to help
you out. In any case, you still need to pay the tax man 55%. But
doing so is a better choice than being left with 0 pension
Think you may be due a tax refund? Apply here to get
your tax back.