How well do you know pension release?

If you’re thinking of taking money from your pension early, you’re not alone. Pension release, as it’s called, is extremely popular and people use the money for all sorts of things from upgrading the car to covering a child’s wedding costs. It could mean you have less income when you retire, so it isn't the right option for everyone.

A number of new pension rules since 2015 have also meant more publicity for this option, making even more people aware of it. Now, anyone with the right type of pension can take as much out of it as they like with no requirement to have other income or to buy an annuity. There’s still a lot of confusion about it though, and we get asked questions every day.

To help clear things up, here are five things you should know about pension release:

25% of your pot can be taken tax-free

Even though the money paid into a pension benefits from tax relief, and the savings grow tax free for most people, the government also lets you take a quarter of your savings completely free of tax. This can be taken all in one go or spread out over time. Any further withdrawals are treated as income and added to your earnings for the year, so taking out a lot in one year could mean the taxman gets a big slice of it, too - exactly how much will depend on your individual circumstances.

55 is the magic number

To take money from your pot you need to be at least 55 years old. In some instances pension release can take some time, so it can be a good idea to get things started earlier. That way, the money should be ready to take when you turn 55. There are a lot of unregulated companies and scammers that claim you can access your money earlier. This isn’t legally possible and could end up costing you most of your savings, which is one of the reasons it’s so important to only deal with advisers that are regulated by the FCA.

Stay safe from scams

You can still work

A pension’s main purpose may be to provide you with money in retirement, but that doesn’t mean you have to be retired to access it. Certain company schemes have their own rules on this but in most cases as long as you’re aged 55 or over you can take money even if you are still working.

Spend it how you like

There aren’t any strings attached to money taken from a pension.

It’s obviously recommended to use it wisely, but the government sees those savings as yours and you can spend them with as much freedom as you would any other money. Whether that’s building an extension or going on a safari adventure is entirely up to you.

You can still make contributions

You can continue paying into a pension even if you’ve taken money out. If you take more than the 25% tax-free amount, though, the amount you can pay in each year and receive tax relief on may reduce from £40,000 to £10,000. As with all things to do with tax, this depends on your circumstances and could change in the future. This highlights one of the reasons why it’s so important to talk to a regulated financial adviser before choosing pension release, to ensure you don’t lose out in the long run.

Want to know more about pension release? Click below to get our free guide and find out:

  • What types of pension are eligible (the State Pension isn’t, for example).
  • Why pension release could be cheaper than a loan.
  • How to get started.

Get your guide


I have a Pension with the Local Authority - I am 61 years of age but my retirement date is 2020. I have been advised to leave my pension in. It is only very small. It only applies to 6 months work which ceased about 10 years ago. I do need money now but will be quite destitute when I retire - what do you advise?

Hi Faith, thanks for your comment. Before we could give you advice we would need to know exactly what’s involved with your pension, including what it will pay you and if it has any other benefits attached to it. We can happily review it for you and this carries no obligation at all. If you’d like to find out more about this, please give us a call on Freephone 0800 304 7600 and a member of our friendly team will be able to help you.

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Call 0800 304 7288 for a friendly chat about your pension


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The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article. For our latest information and news, please see our articles section:

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