How to withdraw money from a pension fund

Following the pension reforms of 2015 it’s now easier than ever to manage your pension. Whether you’re approaching retirement or are thinking ahead, there are several options to consider – including how to draw money out of your pension.

Accessing pension funds

If you qualify for the State Pension and have also paid into a workplace pension over the course of your career, you’ll be able to access each fund at a different age.

When can I withdraw my State Pension?

The State Pension age is fixed by the government and you can’t withdraw a weekly pension until you reach it. The State Pension age is currently 66 for men and women, and looks set to increase to 67 by 2028. You can’t cash in the State Pension as a lump sum.

When can I withdraw my workplace or personal pension?

It’s possible to access a workplace or personal pension much earlier. Once you reach your 55th birthday you can withdraw all of your pension fund.

  • You can take up to 25% as a lump sum without paying tax, and will be charged at your usual rate for any subsequent withdrawals.
  • You can use all of the money to buy an annuity, which will pay out a guaranteed income for the rest of your life
  • You can reinvest your pension fund so it can provide you with income as you require it.

Can I withdraw all my pension at 55?

It is usually possible to withdraw all your pension when you turn 55 (57 from 2028), but there are downsides to consider:

  • You’ll lose out on future pension growth potential
  • You’ll have to pay income tax on 75% of your pension income, which could be significantly higher than if you took it out in smaller amounts over several years
  • Once your pension is converted to cash, it will start losing value against the rate of inflation

How drawdown works

Drawdown is the most flexible way of taking money out of your pension, and is the main alternative to buying an annuity. You have the freedom to move your money into different funds and can withdraw as much or as little as you like, at any time.

When you reinvest your pension - which typically goes into a combination of shares, cash and bonds - the amount you receive can vary depending on the fund’s performance.

While taking your pension cash out is relatively straightforward with drawdown, there’s no guarantee that your money will last forever.

Funds are vulnerable to market performance so the size of your pot can go down as well as up, and you may get back less than you started with.

If you opt for drawdown and change your mind, it’s possible to use your pension fund to buy an annuity at a later date. But if you purchase an annuity, there’s no going back.

How to withdraw money from pension funds

Before drawing money from your pension funds you’ll need to consider the benefits and disadvantages and ensure you have a comprehensive plan in place.

Drawdown is simple with PensionBee:

  • Our service combines all of your old pensions into one easy to manage online plan.
  • Funds are managed by the biggest global investment firms such as BlackRock, State Street Global Advisors, HSBC and Legal & General.
  • You’ll be able to track how your funds are performing through an online dashboard, and once you reach 55 you can access your money in just a few simple steps.

As long as there are no issues verifying your bank details, it should take around 10 working days for you to receive your money.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

Last edited: 06-04-2024

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