can i cash in my pension if i no longer work for the company

Can I Cash In A Pension From An Old Employer | 2024

Confused about what to do when it comes to a frozen workplace pension? 

In this handy guide, we will answer all your questions on frozen workplace pension pots. We will explain the rules of different pension contribution schemes and explain how to go about cashing pension plans from an old employer.

We will cover: 

  • Whether you can cash in a pension from an old employer
  • How to cash in your old pensions, if eligible 
  • Whether you can cash in a pension from an old employer before reaching retirement age
  • What you can do with a frozen pension
  • How to find out if you have a pension from an old employer

Topics that you will find covered on this page

Can I Cash in a Pension from an Old Employer?

Typically, you should be able to cash in a pension from an old employer if you’re over the age of 55. However, the process and implications can vary depending on the specific type of pension scheme. 

For instance, If you have a defined contribution pension from an old employer, you typically have several options. You could take a lump sum, buy an annuity for a guaranteed income, or take money out as and when you need it. 

However, If your old workplace pension is a defined benefit scheme, the rules can be more complicated. It might not always be possible to take money out early, and if it is, there could be reductions to your pension benefits. Before proceeding, you will need to be aware of these reductions.

Some old pensions might be ‘frozen,’ meaning the money isn’t currently being invested. Consequently, it might be worth transferring these to a new pension scheme to potentially get a better return on your retirement savings. 

Moreover, it is recommended to always check with your pension provider or a financial adviser before making any decisions. They can provide personalised advice based on your individual circumstances. 

Finally, it’s important to note that defined benefit pensions, also known as final salary pensions, have different rules around cashing in your pension.

These types of pensions cannot be accessed before your scheme’s normal pension age, which is typically linked to your State Pension age. Consequently, you should always check with your pension provider.

Here is a useful video on transferring your pension.

Should I cash in my pension?

Early pension withdrawal might be tempting if you are in debt and need cash now. However, you need to bear in mind the impact it might have on your retirement. This is why you should speak to a financial adviser.

Whilst the final decision is yours, an independent financial advisor can help explain the pros and cons to you. They can look at the rules set by your pension provider or pension scheme and see what the impacts of cashing in early would be.  

The problem with cashing in early is that when you retire you might not have a sufficient and stable income. Defined benefit pensions, also known as final salary pensions, also benefit from inflation protection, so you might miss out there too. 

Cashing in early can therefore impact the quality of life that you and your family have. 

Whether early pension withdrawal is right for you depends on so many different things, such as your financial circumstances, the type of scheme, and your age. There are guides online, but the fact is an expert can tailor the advice to you.  

Can you cash in a pension early?

You have more freedom than ever to access your pension.  You can access your pension pot from age 55. You can often do this even if you keep working for your employer. 

You can get the entirety of your pension pot as a one-off lump sum (although tax might be payable) if you decide that cashing a pension in early is the best option for you. You are free to spend the one-off lump sum you receive from cashing in your pension however you wish. For example, you could:

  • Invest it 
  • Using the new purchase power to pay off debts or make home improvements
  • Guarantee a salary for the rest of your lift by choosing to buy a annuity

More and more people are deciding that cashing in pensions is a good choice. Most withdrawn defined contribution pensions are worth less than £30,000.  More than half of pension pots accessed for the first time were cashed in completely in 2019, according to the Financial Conduct Authority. 

What happens if I cash in my pension? 

Cashing in your pension, however, might not be the best option given your personal circumstances. There are several disadvantages to consider.

These include: 

  • A potential tax bill. The first 1/4 of the amount you withdraw from a defined contribution scheme is tax-free. However, the other 75% is ‘taxable income’. This means you will be charged income tax on it. If your pension exceeds the lifetime allowance you may also be charged additional tax.
  • Running out of money in retirement. This can happen if taking your pension benefits early leaves you with no stable pension income in the future.  If this happens you might not be able to leave a regular income for your partner/dependants after your die. 
  • Limits on the contributions  that you can pay. If you start to take a pension then your money purchase annual allowance will be £4,000 per annum.  This is the maximum that you can pay in to a pension scheme each tax year.

It is highly recommended that you seek professional, independent financial guidance before cashing in pension pots. 

It is especially important to consider the effect that taking cash from your pension has on your nominated beneficiaries. 

Remember, they may also need to pay Inheritance Tax on cash from pension pots as they can be considered as part of your estate.

Legal Implications of Cashing in Early

Cashing in your pension early can have several legal implications. For example, you’ll need to pay tax on the money which you withdraw. The first 25% is typically tax-free, but the remaining 75% will be added to your income for the tax year and you will be taxed accordingly. 

However, early pension withdrawal is an option if you access your pension before age 55. Unless you meet specific exemption criteria such as ill health, you could face a 55% tax charge. This tax charge is imposed to discourage early withdrawal outside of exemptions.

However, there are some exceptions to this rule. For instance, if you’re in ill health, you might be able to access your pension benefits early without incurring the tax charge. Again, this depends on the individual pension provider and their rules. 

Consequently, make sure that you are aware of ‘pension liberation’ scams. Unfortunately, these scams promise early access to your pension money but can lead to significant tax charges and loss of your pension savings.

To help you access your pension before 55, always verify any offers with a financial adviser or the Pensions Advisory Service. 

Sadly, pension scams are on the rise in the UK. If anyone approaches you out to discuss cashing in your pension, or any investment offering unusually high or “guaranteed” returns, it is important to be very wary.

cash in a pension

Can I take my pension as a lump sum?

Quite a few defined contribution pension providers offer the option to take your whole pension as a one-off lump sum cash payment, rather than getting it in instalments, using something like a drawdown facility.

In these instances any tax owed is deducted by the pension provider before they make the pay out. The first 25% is tax-free and the other 75% is taxed at your marginal rate (check your policy details and tax code for this). 

To lower your rate of tax it can be good to release money over the course of many tax years. However, if you need a lump sum the scheme administrators can explain how your cash lump-sum will be taxed.

How do I cash in my pension?

Simply contact your employer, scheme administrator or pension providers and ask if you can  make a withdrawal of cash. They can then advise you of the process.

You can take out all the money as a cash sum if you wish. It takes about five weeks for payments to arrive. If you need the money for something specific be sure to request it in advance.

On the government advice page you can read more about taking money from pensions and your options.

It is also very important to contact someone with experience and support, such as a pension adviser. They will help you understand every option, and ensure you minimise any risk there might be.

Can I cash in my pension before 55?

Normally, it is illegal to take money out of your pension pot if you are under the age of 55.

However, if  you are seriously ill and are unable to work you might be exempt from this rule. Speak with your pension provider to clarify what counts as ‘ill health’.

Each pension plan has different rules for this, so seek financial advice from a pension advice company before cashing in. 

Can I access my pot early even if in good health?

In short, no. In doing so you would be breaking the law and will face large fines and fees. 

HMRC charge a 55% tax penalty on the entire pension pot, not just the money withdrawn. The tax penalty  could leave little to no future retirement savings for you to live off. Your loved ones can lose out financially, too. 

 “Pension liberation” scammers are people who claim you can get access to the value of your workplace pensions before age 55. However, this is still illegal. 

People over age 55 should  be wary of pension scammers too. Types of signs of a scam include unsolicited emails, cold callers, and returns on investments that sound too good to be true. 

I have a private pension, can I still make a withdrawal? 

You can withdraw money from a private pension, but similar rules apply: 

  • Generally to make withdrawals from pension savings  you must be age 55
  • The exception is if you have severe illness and are retiring early

How do I find out if I have a pension from an old employer? 

The government Pension Tracing Service  is  free and can be very helpful if you are unsure about old frozen pensions. It helps with tracking down lost pension schemes. 

The government Pension Tracing Service will find out which workplace pension scheme your old employers used.  They give you the pension provider name and then you can then contact the administrators. They will tell you whether you were a member and if you have benefits to access. 

You will need to provide the names of old companies you worked for so that they can  investigate your case.

It is a good idea to start your search before you need the money. This is because it is a lengthy process to get free tracing. 

Also, watch out for scammers using similar business names to defraud pensioners. The government scheme is free, so anyone trying to charge is likely a fraudster.

To avoid scams, make sure you use the official government  phone number and speak to someone reputable.

Alternatives to Cashing in Your Pension

If you’re considering cashing in your pension, it’s worth exploring the alternatives first. 

You could consider keeping your pension money invested and taking a regular income through a drawdown or an annuity. This often provides a steady income in retirement, whilst also enabling your pension pot to continue to grow. 

In addition, if you are in need of immediate money, consider other sources first. For instance, you might have savings or investments that you could use instead. It could also be worth looking at ways to cut back on your spending or increase your income. 

You could consider downsizing your home or unlocking property equity as an alternative to accessing your pension early. However, it is important to source impartial advice as property should not be seen as your only pension asset.

If you have multiple pensions with previous employers, consider consolidating them into a new single pension plan. This can provide simplicity and oversight of all your retirement savings in one place. However, take care to understand any special features or guarantees that could be lost. Additionally, consolidating pensions may involve transfer fees.

Furthermore, if you need immediate access to cash, equity release may be an option depending on your circumstances. However, it is necessary to seek regulated financial advice as equity release reduces the value of your estate and can impact your entitlement to means-tested benefits.

Because the decision to cash in your pension is a significant one, always seek advice from a financial adviser or the Pensions Advisory Service before making any decisions.

cashing a pension in early

To take money from your pension do you need to cease working? 

No. In the UK, you can carry on working while taking cash for pension, and you can work past retirement age.  You can keep making pension contributions while working and simultaneously withdrawing pension money. 

The benefit of this is that you can keep topping up your pot for future retirement income, and access extra cash if you need it. 

Can you cash in a frozen pension at 55?

A frozen pension is a workplace pension scheme from a company that you no longer work for. You no longer make contributions to a frozen pension from an old employer.

As soon as you reach the age of 55, you can access the money from your frozen workplace pension. 

Handling a Frozen Pension

A pension plan from a former employer which you are no longer contributing to is known as a frozen pension. Although you may no longer be making contributions, your pension funds are still invested. Many people are curious as to whether they can get their frozen pension paid out.

If you have a frozen defined contribution scheme, your options are typically to leave the money invested, transfer to another pension scheme, or start withdrawals over age 55. However, remember to check scheme rules as some older plans may have restrictions.

Conversely, you should note that some older pension schemes may have special benefits or features that could be lost if you transfer or cash in your pension.

You could lose benefits such as a guaranteed annuity rate, which could provide a higher income in retirement.

Before making any decisions about a frozen pension, it’s recommended that you get in touch with your pension provider or an independent financial advisor. This is because they can help you to understand your options and the potential implications for your retirement income.

Transferring Your Pension

Transferring your pension involves moving your pension money from one scheme to a different pension scheme.

For many, this is a way to consolidate pension pots, making them easier to manage. It could also potentially offer better investment options or lower fees depending on what you choose. 

Whilst most defined contribution pensions can be transferred, some pension providers or older schemes may place restrictions or require you to take financial advice. In addition, transfer fees may apply. If you’re thinking about a pension transfer, you need to consider a few things.

For instance, the potential loss of any special features or benefits in your existing scheme, the fees charged by the new scheme, and the investment options available.

Moreover, you should bear in mind the complexity and risk involved with transfers of defined contribution schemes. You’re usually required to take independent financial advice if you’re considering this type of transfer.

What can I do with a frozen pension?

Many people decide to transfer their pension plans and pool pots together. You must check if this is allowed given the rules of your pension provider. Public sector schemes may not always allow this.

There are a few things to check before making transfers: 

  • Make sure you are aware of any exit charges if you transfer your pension from an old employer. 
  • Check whether your pension scheme is a defined contribution scheme or a defined benefit scheme. A defined benefit pension guarantees an income that usually increases with inflation for life. If you transfer you could lose this, in many cases.

A pension specialist can explain your options in accordance with your goals and give you as much money advice as you need. Contact an advisor if you are unsure about the benefit entitlements of your workplace scheme, or have another question. 

Can I cash in my frozen company pension if my old employer goes out of business? 

In most cases, Yes. If your old employer goes out of business, employees should still be protected as benefits are simply set aside. Once you turn 55 you gain control of the funds from your old pension.

There are two main ways people use the money from an old defined contribution pension:

  •  To buy an annuity and guarantee an income for life. 
  • To transfer their money to a new pension scheme. This can avoid hidden fees and make sure pension investments are on track with your goals/values. Having fewer schemes can also reduce management fees.

If you are transferring your plan there is normally a termination charge.

You can read about pension rights on this government advice page. If you want more tailored information,  speak to an adviser.

cashing a pension in early

The Tax Implications of a Pension Cash-In

Cashing in your pension can have accompanying tax implications.

As mentioned previously, up to 25% of your pension is usually tax-free. Any money you take out beyond this is added to your income for the tax year and taxed accordingly.

It should be noted that if you choose to take a large sum from your pension in one year, it could push you into a higher tax bracket. This means that you could end up paying more tax than you expected.

In addition, your benefits can also be impacted. This is because taking a large sum from your pension could potentially affect your entitlement to means-tested benefits.

Seeking Professional Advice

Making decisions about your pension can be complex to navigate.

Therefore, it’s important to consider your options carefully and to understand the potential implications for your retirement income. This will allow you to make an informed decision. 

Getting advice from an independent financial advisor is often invaluable. They will be able to provide you with personalised advice based on your circumstances. They can help you to understand the options for your pension, the potential tax implications, and how to plan for a secure retirement.

Furthermore, when considering defined benefit transfers or complex arrangements, look for a financial adviser who is regulated by the Financial Conduct Authority (FCA) and holds a pension transfer specialist qualification. You should also ensure that any adviser fees are transparent and agreed upfront.

Using the Pension Tracing Service

Many people lose touch with their pension schemes, particularly if they’ve moved jobs several times. Therefore, the pension tracing service is available to help you to navigate pensions you have lost track of.

This is a free service provided by the Money and Pensions Service, helping you to find contact details for lost pensions. Once you’ve found your old pension, you can get in touch with the pension provider to find out your options.

Making Pension Contributions

Whilst it is important that you understand cashing in your pension, it’s also crucial to consider ongoing pension contributions. This is because making regular contributions to your pension can significantly increase your retirement savings.

If you contribute more to your pension, you will have a larger amount when you retire . Additionally, pension contributions are tax-deductible, which means that your government also makes a contribution to your pension. This holds true regardless of whether your contributions are going towards a personal, workplace, or private pension. 

Moreover, some employers will match your pension contributions up to a certain level. This can be a valuable benefit and can significantly boost your pension pot. To understand how much you could benefit from increased contributions, remember to check with your employer or pension provider.

A Case Study on Cashing in an Old Employer’s Pension

Here’s a case study to help bring the question, ‘Can I cash in a pension from an old employer?’ to life, providing a real-world example. This case should be relatable to those who have several pension plans from different employers and are considering their options.

Let’s consider John, a 57-year-old who has worked for numerous employers throughout his career. John is considering whether he should cash in his pension from an old employer to fund some home renovations.

John’s old employer’s pension plan is a defined contribution personal pension. After some research and consultation with a financial advisor, John learns that he has the option to withdraw money from his old pension plan. This means that he is able to take a tax free lump sum of up to 25% of his pension pot. The remainder of his pension money can be left invested, consequently providing a regular income in retirement.

After consulting a financial advisor, John decides to withdraw a tax-free lump sum from his pension to partially fund his home renovations. 

John is mindful of his taxable income. This means that he understands withdrawing more than the 25% tax-free cash will result in the additional amount being added to his income for the tax year, and taxed accordingly. 

He also knows the importance of continuing to make contributions to his current employer’s pension plan. This will help to replenish his retirement savings after taking the tax-free lump sum, allowing him to continue his planned lifestyle. 

In John’s case, cashing in his old employer’s pension proved to be a suitable course of action. However, everyone’s circumstances and benefit entitlements are different. 

Meet the author

Rob Atherton

Rob Atherton

Rob writes and edits the content produced by the rest of the team. He has a degree in History from Leeds University and has producing, reviewing and editing the site since 2016

Meet The Team

FAQ

1. Can I cash in my pension from an old employer?

Yes, in most cases, you can cash in a pension from an old employer. Conversely, the specifics of your pension plan’s terms and conditions will determine how you can accomplish this. When making a decision, it’s wise to consult a financial advisor or check with your pension provider.

2. How can I take cash from my pension?

If you’re over the age of 55, you generally have several options to take cash from your pension. For instance, you could take a tax-free lump sum, set up an income drawdown, or use your pension money to buy an annuity. Remember that our pension provider should be able to provide you with details of your options.

3. What is tax-free cash in relation to pensions?

Tax-free cash refers to the fact that you can usually take up to 25% of your pension pot as a lump sum without having to pay tax on it. This is often referred to as a ‘pension commencement lump sum’. However, bear in mind that the remaining 75% of your pension pot is then subject to income tax.

4. Can I cash in personal pensions?

Yes, just like workplace pensions, personal pensions can typically be cashed in from the age of 55. Generally, you have three options. Firstly, you can use your pension funds to purchase an annuity. Alternatively, you can set up an income drawdown, or take a tax-free lump sum. Before making a choice, always confirm with your pension provider or consult a financial advisor.

5. What is a cash lump sum in relation to pensions?

A cash lump sum refers to taking a portion of your pension pot as a one-off payment. You should note that you can usually take up to 25% of your pension pot as a tax-free lump sum. As mentioned previously, the rest of your pension pot can then either be left invested or used to provide a regular retirement income.

UK Care Guide - A trusted resource, as seen on:

Share this page

Are you looking for a pension specialist who is local to you?

|

Visit our pension advisor directory and search for an advisor near you.

Do you need help understanding your Pension & Retirement options?

Visit our pension advisor directory and find an advisor local to you.

 

Many offer an initial consultation for free.

Just before you go......