Can I withdraw from my pension early? Advice from a UK tax accountant.
Rinat Ashenazi Motion Design https://www.behance.net/hrinat
Updated: 24/08/2022
If you are considering withdrawing from your pension early it is important to understand the different components of your pension that may lead to hefty fines.
A rise in 'Early Pension Release' offerings from companies have been found in recent years. Anybody considering taking advantage of this offering should do so with caution and seek the appropriate advise. Early Release Pensions, some times called 'Pension Unlocking' involves withdrawing money from your pension before the minimum age of 55 (57 from 2028).
Although not illegal, Early Release Pensions, have often been employed by scammers and sadly many innocent people have lost their savings as a result. Unless you meet specific conditions, you’ll be charged a substantial amount of tax on your early pension withdrawal.
Pension providers may charge you up to 30% on the total sum you withdraw which is a considerable chunk of money to miss out on. Further to this, the pension provider is then required (by law) to notify HMRC that you have withdrawn money from your account. This will be followed by a hefty 55% tax on the remaining amount you're left with after the previous 30% cost was incurred. Whether you felt you were aware of the potential costs or not, HMRC will require you to pay up. You can offer to pay the money back into your pension fund if you are yet to spend it but under certain circumstances, you will not be allowed to do so.
EXCEPTIONS WHERE YOU MAY AVOID FINES:
There are some early pension tax exceptions that the HMRC allows where you may be able to access your pension pot early. It is important that this be done through certified professionals to ensure that you are eligible and avoid unnecessary expenses.
1) You are severely ill and need to retire early for health reasons.
2) Your life expectancy is less than a year
3) you had previously declared a 'protected retirement date' which brought the date of withdrawal forward. This had to have been created before 06/04/2006. This pension privilege is reserved for those in professions that are unrealistic to be in until the standard retirement age.
In both these cases, your money would be released to your directly from your pension provider.
Pension release at 55
Once you have reached the age of 55 you can release money from your personal or work pension.
Up to 25% can be withdrawn from your pension pot tax-free. This can be done as a lump sum or in smaller instalments.
For more information on pension tax planning contact us