Can I Close My Pension and Take the Money Out

Can I Close My Pension and Take the Money Out?

If you have a pension and are thinking about accessing the money, you might be wondering whether you can close the account and withdraw the full amount. The answer depends on the type of pension you have, your age, and your individual circumstances.

This article explains whether you can close your pension and take the money out, when it is allowed, what the rules are, and what the tax consequences might be.

Can I close my pension?

Technically, you cannot always "close" a pension in the same way you might close a bank account. However, in some cases, you can withdraw the full balance, after which the pension becomes inactive or empty.

Whether or not this is possible depends on the type of pension scheme and whether you have reached the minimum pension access age, which is currently 55 and will rise to 57 in April 2028.

Types of pensions and your options

1. Defined contribution pensions

These include personal pensions, self-invested personal pensions (SIPPs), and workplace pensions with an individual pot. If you are aged 55 or over, you can:

• Withdraw the entire pension pot as a lump sum

• Use the money to buy an annuity

• Move into drawdown and take income over time

You can choose to take 25 percent of the pot tax free, while the remaining 75 percent is taxed as income.

If you choose to take all the money out, your pension will have no value left and will not be able to provide any future retirement income.

2. Defined benefit pensions

Also known as final salary or career average pensions, these schemes do not operate like a personal pot. You cannot close a defined benefit pension and take the money out unless you transfer the benefits to a defined contribution scheme.

Transfers are complex and not always advisable. If the value is more than £30,000, you must take advice from a regulated financial adviser.

3. State Pension

The State Pension cannot be closed or taken as a lump sum. It is paid as a regular weekly or monthly income from State Pension age.

Can I close my pension before age 55?

In most cases, no. You cannot access or close your pension before age 55 unless:

• You are retiring due to serious or terminal illness

• You are a member of a scheme with protected early access

• You are the victim of a pension scam (which should be avoided at all costs)

Taking money from your pension before age 55 without a valid reason usually results in unauthorised payments, which can attract tax penalties of up to 55 percent.

Tax consequences of closing your pension

If you choose to withdraw your whole pension pot:

• The first 25 percent is tax free

• The remaining 75 percent is taxed at your income tax rate

This could push you into a higher tax band for the year. For example, if your pension pot is £60,000 and you withdraw it all at once, £45,000 may be taxed on top of any other income you have for that year.

It is often more tax efficient to take your pension in stages rather than all at once.

What happens to the pension after withdrawal?

Once you take out all the money from a defined contribution pension, the account is effectively empty. You will not be able to continue contributing unless you open a new pension plan.

You should also be aware of the Money Purchase Annual Allowance, which may reduce how much you can contribute to a pension in the future to just £10,000 per year once you start accessing pension income.

Is it a good idea to close your pension?

Cashing in your pension might be tempting if you need money now, but it is important to consider the long-term impact. Closing your pension removes a source of income that is designed to support you throughout retirement.

Questions to ask before making a decision:

• Do I need the full amount now, or just part of it?

• What tax will I pay if I take everything at once?

• Will I have enough income in later life?

• Am I eligible for other forms of financial support?

Final thoughts

You can close your pension and take the money out if you are over age 55 and have a defined contribution pension. In this case, you can withdraw your full pot, subject to tax rules. However, this option is not available for defined benefit pensions without a transfer, and it is never an option for the State Pension.

Before cashing in your pension, it is worth taking advice or guidance. You can contact Pension Wise, a free government service, or speak to a regulated financial adviser to help you make the right decision for your future.