Thinking about taking tax-free cash?

31% of people use tax-free cash to clear debt.
Thinking about taking tax-free cash?
January 2019

The number of people dipping into their pension before the age of 65 is on the up. From April 2015 to September 2017, over 1 million pension pots were accessed before the age of 651.

Now, new data* from pensions advice specialists, Portafina, reveals the top reasons people took tax-free cash from their pension before retirement.

The top primary reason for taking money from a pension early was to tackle debt, with almost a third (31%) saying they have accessed their pension before the age of 65 to pay off debts. Home improvements also make the top three reasons (22%), followed by buying/repairing a vehicle (11%).

The top five primary reasons people took their tax-free cash early were:

  1. To tackle a debt (31%)
  2. To make home improvements (22%)
  3. To buy/repair a car/van/motorbike (11%)
  4. To help family (9%)
  5. To take a holiday (8%)

When it comes to the secondary reasons people accessed their pension early; home improvements were top of the list with almost a fifth (19%) of people using the cash to work on their home.

The top five secondary reasons people took their tax-free cash early were:

  1. To make home improvements (19%)
  2. To tackle a debt (16%)
  3. To take a holiday (15%)
  4. To contribute to their savings (14%)
  5. To buy/repair a car/van/motorbike (13%)

With so many demands on your finances, it can be difficult to know whether dipping into your pension pot for ‘the here and now’ it is a better idea than saving it all for your retirement.

With this in mind, Portafina offers their top four considerations for those turning 55 in 2019:

  1. You can opt to release up to 25% of your pension savings completely tax-free. If you want to know what this looks like for you, use this helpful calculator.
  2. You can take all your pension savings in one lump sum. If you take a lump sum of anything over 25% of the total pension value, you will have to pay income tax at your marginal rate. This means both losing money to the tax man and having less to fund your retirement.
  3. You don’t have to do anything at 55. You can leave your pension exactly how it is and watch your savings continue to grow. The option to take some will still be there later if you need it.
  4. Speaking to an independent financial adviser about your pension can help you evaluate which options are likely to leave you in a stronger financial position when it comes to your retirement. And if you decide you want to take some of your pension cash early, they can help you to do that too.

Jamie Smith-Thompson, MD at Portafina says,

“Taking money early from your pension is a big decision as this is the money you have saved for your future. What the pension freedoms give you is the flexibility to use some of your money now, if you really need to.


“Tackling a debt once and for all, especially one with a high-interest rate or taken over a long-term, can lower levels of anxiety and stress and reduce your monthly outgoings. Likewise, future-proofing your home can also mean one less thing to worry about.


“It’s clear from our experience that people are thinking about their overall quality of life and security. For some that means safeguarding their home, for others, it’s helping the kids with education and wedding costs.


“Those thinking of taking tax-free cash to put into other savings should think carefully about how this investment would compare with leaving the money in their pension, which for many will still be the best place for it. A chat with a regulated financial adviser will help you make an informed decision.”Jamie Smith-Thompson

To find out what you should consider before releasing any money from your pension, click here.

Featured in
FT Adviser
What Investment
Mr and Mrs 50 Plus

1FCA Retirement Outcomes Review: June 2018.

*Data and statistics provided by Portafina. Primary and secondary reasons for taking tax free cash in 2018 – 1st Jan to 21st Nov 2018.

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Katie Burgess, Portafina PR and Content Executive

Katie Burgess

PR and Content Executive

01634 930 600

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