Can I Cash In My Pension?

Thinking about cashing in your pension? Find out when and how you can access your pension, the tax implications and whether it’s the right financial move for you.

So, you’ve got a pension pot sitting there and you’re wondering: Can I cash it in?

Maybe you fancy early retirement, need extra cash or just don’t trust the system. Whatever the reason, the good news is you can access your pension – but the rules, tax implications and risks depend on your pension type and age.

Can You Cash In Your Pension Early?

If You Are Under 55 (or 57 from 2028 onwards)

  • Cashing in your pension early is generally not allowed.

  • The only exceptions are if you have a serious illness or a scheme that allows early access (rare).

  • Beware of pension scams – if someone promises they can help you access your pension before 55, it’s probably fraudulent and could lead to huge tax penalties of up to 55 percent.

If You Are 55 or Over (or 57 from 2028)

  • You can access your Defined Contribution Pension.

  • You may be able to transfer or take money from a Defined Benefit Pension, but this comes with restrictions.

  • The key decision is how you take your money – in a lump sum, flexible withdrawals, or as a regular income.

What Type of Pension Do You Have?

1. Defined Contribution Pension (DC) – More Flexibility

If you have a personal pension, private pension, or workplace pension (DC), you have several options from age 55 (rising to 57 in 2028):

  • Take a lump sum – Up to 25 percent tax-free, the rest taxed as income.

  • Withdraw as you go – Also known as pension drawdown.

  • Buy an annuity – Provides a guaranteed income for life.

  • Cash out the whole pot – Possible, but risky due to tax implications.

2. Defined Benefit Pension (DB) – More Restrictions

If you have a final salary or career average pension, cashing in is harder. Options include:

  • Taking the pension at retirement age – Provides a guaranteed income for life.

  • Transferring to a Defined Contribution scheme – Possible, but requires financial advice if over £30,000, and you may lose valuable benefits.

Tax Implications of Cashing In Your Pension

  • The first 25 percent is tax-free.

  • The rest is taxed as income – if you take a large lump sum, it could push you into a higher tax bracket.

  • Emergency tax may apply – Large withdrawals can trigger an emergency tax code, meaning you might overpay and need to reclaim it.

What Are the Risks of Cashing In Your Pension?

Before making a decision, consider the following risks:

  • Running out of money – Once it’s gone, it’s gone.

  • Higher tax bills – Taking too much at once could mean a huge tax charge.

  • Loss of benefits – If you’re still working, large withdrawals might affect benefits like Universal Credit.

  • Scams and bad investments – Always check with regulated financial advisers before transferring or cashing in your pension.

Alternatives to Cashing In Your Pension

If you need cash but don’t want to drain your pension, consider:

  • Delaying withdrawals – The longer your money stays invested, the more it can grow.

  • Taking only what you need – Use pension drawdown to access small amounts.

  • Using other savings first – Consider ISAs or emergency funds before dipping into your pension.

Final Verdict: Should You Cash In Your Pension?

  • If you are under 55, cashing in is not an option unless due to ill health.

  • If you are over 55, you can access your pension, but doing so too soon or all at once can result in large tax bills and financial instability later in life.

  • Always check with a financial adviser before making big decisions about your pension.

Pensions are designed to provide a secure retirement – cashing them in early should be a carefully considered decision, not a quick fix.