What are the implications after I have released my pension?

Since 2015 you are allowed to release all of your pension fund at 55, but depending on your situation it may have an effect on your current finances or legal status.

The quick and easy guide to effects of releasing your pension

The money you release from your pension could be an enormous asset when facing financial difficulty, but having a sudden windfall of cash could also have an effect on your tax situation, income or legal status. In this guide, we look at the situations where your lifestyle may impact on how you can use it.

The headline facts at a glance

Pension release is one of the great new pension freedoms which allows you to take all savings from your pension pot at the age of 55. Only the first 25% you release is tax-free – the remaining 75% would be taxed as income. Any money taken from your pot will deplete your retirement fund and so it is essential to speak to a financial adviser to help you decide whether it is the best way forward for you. Although pension release is a great asset for some, it is not suitable for everyone. A financial adviser will explain how the release of savings can have an impact on your current finances depending on your lifestyle.

Below are some of the more common situations which could affect the money you take out. This is by no means an exhaustive list but shows how important it is to be fully informed when considering pension release.

Will it impact on my benefits?

Means tested benefits

If you are receiving means-tested benefits (Housing benefit, council tax support etc), you will need to declare any capital or savings to the social security. There are many different types of benefit and all have their own rules, but generally any amount over £6,000 will proportionally affect the benefits you receive. If you have over £16,000 savings, your benefit is likely to be stopped until all or part of those savings are spent1

Also, it is important that the money is used in a way that the social security sees as relevant (such as everyday living or an essential home improvement item etc). If it is judged that the money was given away so that state benefits would not be affected, your claim will be assessed as if the original amount was still present (it is likely they will ask to view your bank statements) and you run the risk of being disqualified from claiming benefit in the future.

If you are putting the money to an essential home improvement etc. it would be a good idea to let the social security know what you are doing and when the money is likely to go into your account. This way there will not be any dubious periods when you may be putting your benefits at risk.

Will it affect my income tax rate?

If you have only released the tax-free amount (25%) from your pension, the amount of tax you pay on your income will not be affected at all. The only time a withdrawal from your fund may attract tax bills is when you take out a part of the remaining 75% savings*. This amount would be considered income by HMRC and may also take you into a higher income tax rate depending on the amount you withdraw.

*Tax treatment depends on your individual circumstances and may be subject to change

What if I am bankrupt?

If you have declared yourself bankrupt, you must declare any monies you receive to the Official Receiver (OR). Failure to do so could lead to your bankruptcy being extended due to non-cooperation. You may even run the risk of being accused of a criminal offence. Generally, all the money will be used to pay off debts you owe and the OR’s fees, though in rare cases you may be allowed to keep some of the money if you can prove you are in a state of financial emergency. The amount you withdraw through pension release will only end your bankruptcy if it totally covers all of your debts and fees to the OR.

Could it effect other debts I may have?

Yes, it could indirectly. If you have found yourself unable to pay a large debt because of unavailable funds it may have led to an agreement between yourself and the relevant company as to how and when you will pay that money back. If it comes to the attention of the company that you are in receipt of a “cash windfall” it may need further negotiation around how that money is used to pay off any outstanding commitments.

How a financial adviser can help

For a lot of people, pension release can be a great asset in difficult financial times. But because of how it may affect your retirement savings, income and legal status, it is essential that you obtain advice before accessing your fund. A financial adviser will look at your unique requirements and aspirations for the future, assess how your retirement savings maybe be affected and highlight the ways in which pension release could impact on your lifestyle and finances.

Request your information packRequest your FREE information pack

Get a deeper understanding of the current pension freedoms with our FREE information pack. Complete the quick and easy enquiry form on the right and we will send you all you need to know about taking tax-free cash from your pension and what it could mean for you. We will also let you know how our no obligation pension review works; why it won’t cost you a penny to receive our full, independent advice; and how to take advantage of it.


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More information…

Hopefully the information in this guide has given you a clearer idea of how your tax-free cash could affect your finances. Below are three of our most frequently asked questions. If you cannot find what you are looking for here please do not hesitate to give us a call.

Why are so many people taking money from their pension before they retire?

Thousands of people across the UK are taking money from their pension pot early to tackle a current pressing need or opportunity. In our experience, some of the most common reasons include:

  • Tackling a long-standing financial commitment such as a mortgage, loan or credit card.
  • Supporting a family member with a big life event such as a wedding or deposit.
  • Making important upgrades to the house.

These are just a few examples and you might have a completely different reason for wanting to take money early from your pension. One thing that you need to consider is that this option isn’t suitable for everyone, and it’s important to seek financial advice before making any decision.

Can I release money early from all types of pensions?

You can take money from any private pension and most employee schemes, although final salary (also known as defined benefit) schemes may need to be transferred to a personal scheme first. Financial advice is highly recommended with transferring from a final salary scheme as there is a risk of losing valuable benefits.

You cannot use pension release to take money early from the state pension or unfunded public sector schemes which cover organisations and professions including the NHS, teachers, armed forces, civil servants, firefighters and the police.

At what age can I release money from my pension?

Since the government introduced the new pension freedoms in 2015, you are allowed to take money from your pension from the age of 55. However, you can begin the process a little earlier, generally within 6 months of your 55th birthday. This ensures that all the work has been carried out, so that you can receive your money once eligible.

In very rare circumstances, such as extremely poor health, you may be able to take money from your pension before you are 55.

Call 0800 304 7288 for a friendly chat about your pension

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Stephen finished his documentary

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Alan's pension release story

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Alan had credit cards charging high rates of interest. Taking some tax-free cash from one of his pensions allowed Alan to clear the cards, and the rest remained invested for the future. Click the link below to watch Alan's story.


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Mark wanted us to find his pensions from previous jobs. Tracking them down gave him almost £20,000 more for the future. We then combined them into a single pension fund, giving more control than before. Click the link below to watch Mark's story.


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Frequently asked questions

Important information

Releasing your pension benefits early could reduce your income at retirement and therefore is only suitable for a limited number of people and circumstances.

On this page we talk about your pension and tax implications. Tax treatment depends on your individual circumstances and may be subject to change in the future.

1 https://worksmart.org.uk/pension-advice/debt-and-benefits/benefits/what-are-savings-limits-means-tested-benefits

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