How to withdraw your pension
Here is how to find out what age you can withdraw from each type of pension and what you need to do to claim them.
Pensions are long term investments. You may get back less than you originally paid in because your capital is not guaranteed and charges may apply.
When can you withdraw from your pension?
Here is how old you need to be to start withdrawing from your pension:
| Type of pension | Age you can withdraw |
|---|---|
| Defined contribution (DC) pension | 55 |
| Defined benefit (DB) pension* | 65 |
| Self Invested Personal Pension (SIPP) | 55 |
| State Pension | Varies |
State Pension - for age you can withdraw check here
* Some let you withdraw from age 55, but this could reduce your retirement income.
On 1 February, 2021 the FCA will be placing new rules for those who have defined contribution pensions. These rules apply to those who’ve already decided to take a retirement income through drawdown but don't take professional advice.
The new rules will require pension providers to offer their customers investment pathways that will be designed to apply to four specific scenarios. It would then be up to then individual to chose which pathway is right for them.
The four scenarios are:
I have no plans to touch my money in the next five years.
I plan to use my money to set up a guaranteed income (annuity) within the next five years.
I plan to start taking my money as a long-term income within the next five years.
I plan to take out all my money within the next five years.
DC and DB pension withdrawals
If you have a DC pension, you can withdraw up to 25% of your pension, tax free, when you retire. You will have income tax deducted on any amount you withdraw over this. For example:
Your pension is worth £200,000 and you withdraw 40% (£80,000)
You pay no tax on £50,000 (25% of your pension)
You pay income tax on £30,000 (remaining 15% of total withdrawal)
If you have a DB pensions, withdrawals are calculated differently and each scheme has their own formula for making deductions.
You should contact your pension company to ask for more details if you want to withdraw a lump sum from your total DB pension fund.
How to claim
You will receive paperwork in the post up to six months before you can start drawing an income from your pension. This will:
Explain when you will start getting your monthly pension
Ask if you want to withdraw a lump sum payment worth 25% of your total pension pot
Making additional withdrawals
For DC pensions, the first 25% of any money you withdraw will be tax free, but the remaining 75% is taxed at your income tax rate.
This type of withdrawal is called an Uncrystallised Funds Pension Lump Sum (UFPLS).
For example, a withdrawal of £1,000 will give you £250 (25%) tax free, but the remaining £750 (75%) will be taxed at your rate of income tax.
Some companies could offer to give you access to your pension fund before you reach your retirement age.
This is usually illegal and can end up costing you up to 55% in tax and charges.
If you have not reached your retirement age yet and need access to your pension, contact an independent financial adviser to discuss your options.
SIPP withdrawals
A Self Invested Personal Pension is a type of defined contribution pension.
This means your pension is only worth as much as you have paid in, plus growth from any funds your pension has been invested in.
How to claim
You can claim on your SIPP in the same way you would if you had saved in a defined contribution pension with an employer.
You will be contacted by your pension supplier up to six months before you are eligible to claim on your workplace pension and given the option to withdraw up to 25% of your pension pot.
State Pension withdrawals
You have to wait until you reach your State Pension age before you can receive anything from your State Pension.
You cannot withdraw a lump sum from your State Pension, but do get a monthly payment that is based on how long you contributed National Insurance throughout your life.
How to claim
There are three ways you can claim your State Pension:
Apply through the GOV.UK website
Phone the pension service, telephone details are on the GOV.UK website
Complete a pension claim form and send it to your local pension centre
Alternatively, if you live abroad there are two ways you can claim your State Pension:
By contacting the International Pension Centre
By completing the International State Pension claim form and sending it to the address found on the form
Can you withdraw your pension early?
This depends on the type of pension, so make sure you contact your pension supplier to find out when you can withdraw to find out if there are any charges.
If you need your pension money early to pay off debt, then speak to an independent financial adviser first who may be able to discuss an alternative solution.
What to do with your pension when you retire
Your pension supplier will usually offer you an annuity rate on your pension pot. This is how much they will pay you each year in return for keeping your pension money invested.
You do not need to accept what you are offered and can shop around to find a better rate with another company. Find out more about annuities here.
What is income drawdown?
This lets you reinvest your pension into a new investment that gives you an income based on the annual amount you want to draw from it.
For example, if your pension pot was worth £250,000, you could choose an annual income of £7,000 which will be deducted from your pot each year.
There are two types of income drawdown:
Flexi access drawdown: This option has been available since April 2015, and lets you take as much money as you like as an income.
Capped drawdown: This let you choose up to a set amount to withdraw each year, but this option was withdrawn from 6th April 2015.
Make sure you speak to an independent financial adviser before choosing an income drawdown product, as the amount you choose to withdraw each year could limit how long your income will last.
FCA introduces 'investment pathways' for retire
You can help ensure you have the retirement you want by finding the best personal pension plan to make your money work as hard as it can.