Early pension release, or pension unlocking, means withdrawing money from your pension before the minimum age of 55. From 2020, this age is rising to 58. While it is possible to withdraw money from your pension before reaching 55, caution is required. Hefty tax charges are likely to follow, unless certain criteria are met.

When could I take my pension money before 55?

You might be able to get money from your pension before the age of 55 if you joined a pension scheme before 6 April 2006 and the policy comes with a “protected pension age”. These types of schemes were often only applicable to specific jobs, like sportspeople or entertainers so ask your pension provider to check if this applies to you.

Furthermore, you might be able to withdraw money from your pension before reaching 55 if you become very unwell. In this scenario, you may be able to take out the entirety of your pension pot. This generally applies if you are expected to live for less than a year and if all your pension pots are worth less than the lifetime allowance. You will need to check with your provider to see what their requirements and rules are.

You can ensure your loved ones, or a selected charity, receives your retirement savings if you die before you take them. To do this you need to nominate any beneficiaries via your pension provider.

However, outside of these cases, it is incredibly unlikely you will be able to access your fund.

Becky O’Connor, director of public affairs at PensionBee, says: “In 99 per cent of cases, it’s not possible to withdraw your pension early.”

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Anything to watch out for?

Unless you are seriously unwell or have a pension with a “protected pension age” you won’t normally be permitted to withdraw funds from your pension before the age of 55 and, if you do, they will often be classified as “unauthorised payments”.

These can trigger a sizeable tax charge and potentially a fee from the pension provider and you will pay up to 55 per cent tax on any early payments.

O’Connor said: “It’s technically possible to make an unauthorised withdrawal, but you would pay 55 per cent tax on it and it’s highly unlikely your pension provider would allow this. This amount of tax would be a huge penalty after years of diligent saving.

“Beware the companies offering to help you get money out of your pension early – it may be a scam and preying on a need to access cash quickly.”

How much money can I save for retirement before tax?

The pension annual allowance is the maximum you are permitted to save across all of your pension schemes in a single year, while benefiting from tax relief. You can add more to your pension pot, but you won’t get tax relief on any amounts above the annual pension allowance. At present, the current annual limit is £40,000 for most people.

Your pension annual allowance might be lower if you have a high income or have flexibly accessed your pension pot. You will have a reduced annual allowance if both your “threshold income” is over £200,000 and your “adjusted income” is over £240,000. It’s also important to note that flexibly accessing your pension pot includes taking cash from a pension pot.

What’s the lifetime allowance?

You also have a lifetime allowance. This is the amount you can draw from a pension or multiple pensions without paying extra tax. It refers to how much you can draw out of your pension rather than how much you put into it.

The current lifetime allowance is £1,073,100. From time-to-time this amount can change and might be cut if the government of the day wants to rake in more tax coffers. Calculating your lifetime allowance might be a bit trickier if you have a final salary pension scheme, as this type of pension does not involve a fixed sum of money.

If the sum of all your pension pots combined tops the lifetime allowance, then you will face an additional tax charge. How much extra you will have to fork out depends on how much the lifetime allowance is exceeded by and how you take your pension.

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