Cashing in a Pension

Yes, you can. In theory, and depending on whether your provider allows it, you could cash in a pension pot in one go. However, this is rarely a sensible option as it could mean that you run out of money, have nothing to pass on to your dependents, receive a large tax bill, and potentially lose out on some means-tested state benefits.

When it comes to cashing in a pension, whether whole or in part, it pays to seek the advice of a Hilltop adviser first. 

In most cases, you can’t withdraw funds from a defined contribution pension until you reach the age of 55. This minimum age threshold for early retirement is set to rise to 57 in 2028. Be wary of companies offering early access to your pension funds; they’re likely to be fraudsters.

It may be possible to cash in pension funds earlier if you’re in ill health or if your policy has a protected retirement age, which is common for athletes and forces veterans.

The timescales for taking money from your pension can vary from provider to provider, and also the type of pension you have. If you have a Defined Benefit pension a lump-sum may not be possible and the rules are governed by the scheme provider.

Under the “small pots” rules, you can cash in up to three personal pensions worth £10,000 or less. The whole value of these smaller pensions must be taken in one go.

However, the good news is that in doing so you won’t trigger the money purchase annual allowance (MPAA), which reduces your yearly pension contribution allowance from £60,000 to £10,000. 

There’s no limit to the number of small occupational pension pots you can cash this way.  

A deferred pension is simply a pension that you choose to delay taking until later in life. That can be a personal pension, workplace pension or even the state pension.

Essentially, you can cash in a deferred pension in exactly the same ways as usual. However, the big benefit of taking an income from your pension slightly later is that it has the chance to grow in value. You can even continue paying into a personal or workplace pension until the age of 75. 

This doesn’t include state pension, where you cannot receive a lump sum from the government.

The short answer is: yes. This can make sense in some cases, such as if you’re cashing in a smaller pension worth £10,000 or less under the “small pots” rules. However, it makes less sense to do so with a larger pension pot because any funds over and above the 25% tax-free threshold will be taxable as income.

This could push you into a higher tax bracket and lead to a hefty tax bill. Not to mention the fact that you could ultimately run out of money sooner than you’d planned. Again, we recommend seeking pension advice from one of Hilltop’s experienced financial advisers before you make any decisions.

Yes, provided you’ve reached pension age and have a defined contribution scheme with an old employer that you no longer pay into (known as a “frozen” or “preserved” pension), you can cash it in using the usual methods.

If you have a defined benefit or final salary pension with a previous employer, you typically won’t be able to access your funds until you reach the pre-agreed “Normal Pension Age” (NPA). This is typically 65 or, if you’re lucky, 60.

With a defined contribution pension fund, the transfer value signifies the amount that would be transferred to another pension scheme should you opt for a pension transfer.

A transfer value quote is not guaranteed (it’s typically subject to investment performance) and can differ from the fund value, especially if exit charges apply.

With a defined benefit pension, a cash equivalent transfer value (CETV) gives an estimate of the amount your provider would offer you to transfer your funds to a defined contribution scheme. 

A CETV usually has a timed guarantee of three months from the date of issue. However, the FCA stance is that transferring a Defined Benefit pension to a Defined Contribution pension is rarely an advisable option due to the benefits you would stand to lose in the process.