Can I take my pension at 55?

Under reforms introduced by former Chancellor George Osborne, you now have more pension options at 55, including taking your pension. However, with this freedom comes extra risk that your pension might not last – especially with life expectancy and the age at which you can claim the state pension steadily increasing.

Taking a pension at 55

By the end of 2018 the state pension age for women will have risen to 65 - equalling that of men. Ages for both genders will steadily increase to 66 by 2020 and 67 by 2028.

Workplace pensions and private pensions work a little differently and are accessible much earlier. These can be unlocked from the age of 55, rising to 57 in 2028.

Workplace pensions (arranged by your employer) and private pensions (arranged by you) are known as defined contribution schemes. These are the most common type of pension and were reformed in 2015 to be more accessible, giving those nearing retirement age greater flexibility than ever before.

Once you reach the age of 55 you can take up to 25% from your workplace or private pension without paying tax, regardless of whether you intend to continue working. You can then choose to keep the rest of your pension invested, make ad-hoc withdrawals through drawdown (subject to income tax), or use the funds to buy an annuity which will pay out a set amount for the rest of your life.

What should I consider before taking my pension?

Before taking any money from your pension it’s crucial to weigh up the benefits of short-term gains versus the financial security and long-term income it can provide.

The size of your pension and how long it can last will depend on how much you’ve paid in, how well the investments have performed over time and how much money you withdraw. The more money you withdraw early on in retirement, the less time there will be for your pension to potentially increase in value and the greater the risk that it may not last for the rest of your life. Elsewhere, it’s also important to consider how pension drawdown tax works, as this can have an significant impact on the size of your pension pot.

To protect your pension, you may choose to explore lower-risk investments as you near retirement age, however as with all pensions there is always a risk of underperformance.

Can I take my pension early?

If you’ve already celebrated your 55th birthday, you’ll be eligible to access funds from your workplace or private pension. In some circumstances you may be able to unlock your pension earlier, such as if you’re retiring early because of ill health or have a pension scheme with a protected retirement age.

PensionBee can help you understand your options and group all of your pensions into one place, making it easier to manage your money – especially when it comes to taking your pension. Join PensionBee and take control of your pension savings today.

This information should not be regarded as financial advice. As always with investments, your capital is at risk.

Last edited: 12-01-2018

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