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can I close my pension and take the money out

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by

Wojciech
in
Wojciech

Wojciech

Diploma for Financial Advisers
Diploma in Accounting
Member of London Institute of Banking and Finance

Many people wonder, Can I close my pension and take the money out? The answer depends on the type of pension you have, your age, and the rules surrounding pensions in the UK. Let’s break it down in simple terms to help you understand your options.

Types of Pensions in the UK

There are two main types of pensions:

  1. State Pension: This is provided by the government and cannot be closed or cashed out. It is paid weekly once you reach the state pension age, which is currently 66 and will rise to 67 by 2028.
  2. Private or Workplace Pensions: These are savings you or your employer contribute to, and you may have more flexibility with these. However, rules still apply.

Rules for Taking Money Out of a Pension

For most private or workplace pensions, you can access your funds starting at age 55 (this will increase to 57 by 2028). Here are your main options:

  1. Take a Lump Sum: You can take up to 25% of your pension pot tax-free. The remaining amount will be taxed as income.
  2. Full Withdrawal: You can close your pension and take all the money out. However, this might push you into a higher tax bracket since the withdrawn amount is added to your annual income.
  3. Leave It Invested: You can take smaller amounts over time, leaving the rest of your pension invested for potential growth.

Things to Consider Before Closing Your Pension

  • Tax Implications: Taking out your entire pension pot could result in a large tax bill. Plan carefully to avoid unnecessary charges.
  • Future Income: Once you close your pension, you lose the steady income it would have provided during retirement. Ensure you have other savings or income sources.
  • Fees and Penalties: Some pensions may charge fees for early withdrawal.

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What If You’re Under 55?

If you’re under 55, you generally cannot access your pension unless you meet specific conditions, such as serious ill health. Be cautious of schemes promising early access, as they may be scams or come with heavy penalties.

Alternatives to Closing Your Pension

Instead of closing your pension, consider:

  • Taking Smaller Withdrawals: This reduces your tax burden and keeps the rest invested.
  • Transferring Your Pension: You can move your pension to a provider offering better terms.
  • Seeking Professional Advice: Speak with a financial expert to explore the best options for your situation.

Final Thoughts

While it might be tempting to close your pension and take the money out, it’s a big decision that requires careful thought. Consider the tax implications, the impact on your future income, and any fees involved. If you’re unsure, seek professional guidance to make the best choice for your circumstances.

By understanding your options, you can make informed decisions about your pension and plan for a secure financial future. If you have questions about pensions or need tailored advice, feel free to get in touch.

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