Can I Withdraw My Workplace Pension

Can I Withdraw My Workplace Pension?

If you have been contributing to a workplace pension, you may be wondering when and how you can withdraw money from it. Workplace pensions are designed to provide you with a secure income in retirement, but you do have some flexibility in how and when you access your savings.

This article explains the rules around withdrawing money from your workplace pension, the age at which you can do so, and what options are available to you.

What is a workplace pension?

A workplace pension is a scheme arranged by your employer to help you save for retirement. Both you and your employer usually contribute, and your contributions benefit from tax relief.

There are two main types of workplace pensions:

1. Defined contribution pensions – your money is invested and the amount you get depends on how much is paid in and how well the investments perform

2. Defined benefit pensions – your pension is based on your salary and how long you have worked for your employer

The way you withdraw your pension will depend on which type you have.

When can I withdraw my workplace pension?

You can normally withdraw your defined contribution workplace pension from age 55, although this will rise to 57 from April 2028. This includes:

• Group personal pensions

• Group stakeholder pensions

• Master trust arrangements like NEST or The People’s Pension

If you have a defined benefit pension, the age at which you can take it is usually set by the scheme and may be 60 or 65, although early retirement may be possible with a reduced income.

What are my options when I withdraw my pension?

If you have a defined contribution pension, you have several options once you reach the minimum age:

1. Take a lump sum

You can take your whole pension pot or part of it as a lump sum. The first 25 percent is tax free. The remaining 75 percent is taxed as income.

2. Pension drawdown

You can leave your pension invested and take money out when you need it. This offers flexibility, but your pot may run out if not managed carefully.

3. Buy an annuity

You can use your pension pot to buy an annuity, which pays you a guaranteed income for life or for a fixed term.

4. Take smaller lump sums

Known as UFPLS (uncrystallised funds pension lump sums), this allows you to take a series of lump sums. With each withdrawal, 25 percent is tax free and 75 percent is taxable.

You do not have to choose just one method. You can combine different options depending on your needs.

Can I withdraw my workplace pension before age 55?

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

• You are suffering from serious ill health

• You have a pension with a protected lower retirement age

• You are a member of certain schemes with special conditions (rare)

Withdrawing money early without meeting these criteria is likely to result in a large tax penalty of up to 55 percent, and you could also fall victim to pension scams. Always be cautious of anyone offering early access to your pension.

What tax will I pay when I withdraw my pension?

The first 25 percent of your pension is usually tax free. The remaining 75 percent is taxed at your normal income tax rate. If you withdraw a large amount in one year, it may push you into a higher tax band.

It is often more tax efficient to withdraw smaller amounts over a number of years rather than all at once.

Can I continue working after withdrawing my pension?

Yes. You can take your workplace pension and continue working. However, if you start taking money from your defined contribution pension, you may trigger the Money Purchase Annual Allowance (MPAA), which limits future contributions to £10,000 per year.

This could affect your ability to rebuild your pension if you plan to keep working and contributing.

Final thoughts

You can withdraw your workplace pension from age 55 if you have a defined contribution scheme, or from your scheme’s normal pension age if you have a defined benefit pension. You can choose to take a lump sum, buy an annuity, or draw down income flexibly.

Before making a decision, it is wise to speak to a financial adviser or use the free guidance available from Pension Wise, part of MoneyHelper. Withdrawing your pension is a big step, and getting the timing and method right can make a significant difference to your financial future.