Can I cash in a pension from an old employer

Can I cash in a pension from an old employer

This page was last updated on 1 January 2021

Can I Cash In A Pension From An Old Employer?

Navigating the rules of pension contribution schemes can be confusing, especially when it comes to a frozen workplace pension from an old employer. 

This article answers the most commonly asked questions about cashing pension plans from an old employer. It gives you general pensions guidance, and tells you everything you need to know about retirement pension basics. 

The types of pension question that will be answered in this guide are:

  • Can I cash in a pension from an old employer?
  • How do I cash in my pension?
  • Can you cash in a pension before retirement age?
  • What can I do with a frozen pension from an old employer?

Continue reading this blog for answers to these key questions and more.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.

Can I cash in my pension if I no longer work for the company?

Yes. You can withdraw money from a pension you have built up with an old employer, as any money you have accumulated is yours. Once you are 55, you can access this cash as instalments or a lump sum.

The fact is that the money you have built up from these jobs and contributions is rightfully yours, even if you no longer work for this employer.

You can also transfer the money from your old employer’s pension scheme to your new pensions provider if you wish. This is an especially good idea if you are under the age of 55, because you will be unable to access the funds and pensions become frozen as soon as you leave a company and stop contributing to its pension scheme.

However, keep in mind that you might lose some pension benefits from your defined benefit scheme if you combine your pots. Check the terms of your old employer’s pension scheme.

Should I cash in my pension? 

It is ultimately your decision whether or not to cash in your pension, but seeking independent financial advice may help you work out what is best for you and your family. You can speak to your pension scheme provider about the terms of your pension and how cashing in would work according to their rules.

Your age, your financial circumstances, and the type of pension scheme that you have are all important factors to be considered when it comes to early pension withdrawal.

Even if you desperately need extra money now, cashing in before you reach the State Pension age will have a big impact on your retirement. Taking cash from pension plans early means that you may not have a stable income rising with inflation in the future, and so your quality of life may be reduced.

Here is a useful video about transferring pensions.

How do I cash in my pension?

All you need to do is contact your employer pension providers and request to make a withdrawal of cash.

If you have a small pot pension, you can withdraw all the money as a cash sum. It normally takes around five weeks for payments to arrive, so you need to request the money in advance.

You can read more about your options for taking money from pensions on the government advice page

It is also very important to speak to advisers and pensions experts for support. Contacting someone with experience will help you understand each option, and will make sure that any risk is under control.

cashing in pension

Can you cash in a pension early? 

Since 2015, you have more freedom to access your pension. Now, you can access your pension pot from age 55 even if you continue to work for your employer.

Cashing a pension in early will grant you the entirety of your pension pot as a one-off lump sum. You can spend the money you receive from cashing in your pension however you wish, for example, by:

  • Investing it to get a bigger return
  • Using the new money purchase power to buy a annuity and guarantee a salary for life
  • To pay off debts or make home improvements

Cashing in pensions is becoming a popular choice. The Financial Conduct Authority found that in 2019, over half of pension pots accessed for the first time were cashed in completely. The vast majority of these withdrawn pensions were worth less than £30,000.  

What happens if I cash in my pension? 

Cashing in your pension, however, may not be the best idea for your personal circumstances as there are several disadvantages.

Taking money from your pension early can mean you: 

  • Lose your entitlement to state benefits now and in the future.
  • Lose valuable features from your defined benefit pensions.
  • Incur a large tax bill. The first 25% of the amount you withdraw is tax-free, but the remaining three quarters is considered taxable income so you will be charged income tax. Your tax band is highly likely to increase because of this, and you may be charged extra if your pension exceeds the lifetime allowance.
  • Run out of money in retirement as you will have no stable pension income in the future. 
  • Therefore, you won’t leave a regular income for your partner or dependants after your death. The nominated beneficiaries will need to pay Inheritance Tax on the money that came from your pension pot as it will be included in your estate.

Drawing from your pension also limits the amount that you can pay into your contribution pension

It is essential that you seek professional, independent financial advice before cashing in pension pots.

"You must wait until you reach the State Pension age before you can claim your State Pension. Under most circumstances, you cannot take money out of your pension pot if you are under the age of 55. This is a legal requirement."

Can I cash in my pension before 55?

You must wait until you reach the State Pension age before you can claim your State Pension. Under most circumstances, you cannot take money out of your pension pot if you are under the age of 55. This is a legal requirement. From 2028 the minimum age will rise from 55 to 57.

The exception is if you are seriously ill and therefore are unable to work. You will need to speak to your pension provider to clarify the rules of your pension and what counts as ‘ill health’ according to the definition of your employer. 

If you are deemed to be in ill health and both:

  • have a life expectancy of less than a year
  • have a pension plan worth less than the £1,073,000 lifetime allowance (as at 2019/20 tax year)

Then you might be able to cash in your pension before age 55. In this case, you may be able to take the whole pot tax free.  Speak to your pension provider for more information.

However, it is very important to be aware of “pension liberation” scammers. These are people who claim you can get access to the value of your workplace pensions before age 55, but in doing so you would be breaking the law. 

Doing so will incur large fines and fees. HMRC will charge you a 55% tax penalty on your entire pension pot, not just the money withdrawn. This would leave you and your loved ones with little to no retirement savings to live on in the future.

Over 55s should also be wary of pension scammers. In both cases, cold calls, unsolicited emails, and unrealistic returns on investment are the tell-tale signs of a potential scam.

cash in a pension

Can you withdraw money from a private pension? 

Yes, it is possible for you to withdraw money from a private pension. 

The overall rule is that you must be age 55 to make withdrawals from pension savings. Or, you must be retiring early due to severe illness (see more details about these instances above).

Do you need to stop working to take money from your pension? 

No. In the UK, you can carry on working while taking cash for pension. You can also continue working for an employer past retirement age if you would like.

You can also still make pension contributions while working and withdrawing pension money. 

This way, you will be able to keep the pot topped up for your future retirement income at the same time as accessing some extra cash as needed. 

Can I take my pension as a lump sum?

Yes. There are many pension providers who offer the possibility of taking your whole pension as a one-off lump sum cash payment. 

The pension provider will deduct any tax before paying out. The first part of your pot is tax-free (25% of the total value), but you will be taxed on the rest (the remaining 75%) at your marginal rate.

For this reason, it can be beneficial to release money over the course of several tax years. The rate of tax you pay will be decreased as a result. The scheme administrators of your employer can give you more information about how your money will be taxed and how the receipt of a cash lump sum would work.

cash from pension

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. 

What can I do with a frozen pension?

When your pension becomes frozen upon leaving an old employer, fees will be subtracted from your balance and no new money will go into the pot. A sensible course of action may be to transfer your pension plans and pool your pots together, if this is possible with the rules of your pension provider (public sector schemes do not allow this). 

If you decide to transfer your frozen pension, make sure you are aware of any exit charges. You may find that you will lose more money by transferring your scheme than if you had just left your frozen pension as is.

Another issue to be aware of is whether your pension scheme is classed as a defined contribution scheme or a defined benefit scheme. For example,a  defined benefit pension gives you a guaranteed income for life that increases in accordance with inflation. Transfers may mean you lose this valuable aspect of benefit pensions.

Speak to a pension specialist if you are unsure about the benefit entitlements of your workplace scheme. The adviser will be able to talk you through your options and give you as much money advice as you need.

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

If you aren’t sure whether you have any forgotten pensions from old employers, you can use the government run Pension Tracing Service. It is a free service and can be very helpful in tracking down lost pension schemes. 

However, you should be wary of scammers using similar business names to defraud pensioners. These fraudsters will charge you, whereas the government scheme is free. Make sure you are using the official phone number and speaking to someone reputable. 

The government Pension Tracing Service will find out which workplace pension scheme your old employers used. You will need to give them the name of your old companies for them to research your case.

Once they have found out which scheme the company used for their employees, they will give you the pension provider name. You can then contact the administrators of that scheme to find out if you were a member and if you have any benefits.

The process can be quite lengthy, so it is a good idea to start your search before you need the money. 

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

If your old employer goes out of business, your old pension should still be protected and any benefits will be set aside. 

You can access the funds once you turn 55. 

Some people use the money from an old pension to buy a care annuity and guarantee an income for life. But it is very important to think about the costs that result from this decision, as it is a risk.

Others simply transfer their money to a new pension scheme to avoid hidden fees. Or to ensure that their pension investments are on track and in line with their values. This way, they may also end up paying less in management fees across multiple schemes. 

However, there is normally a termination charge if you are transferring your plan, so this is something to look out for. Learn more about your pension rights from the government advice page here, and speak to an adviser for more tailored information.

Article author

James Lloyd

I am the primary writer and author for Help and Advice, having originally started the site because I recognised that there was a need for easy to read, free and comprehensive information on the web. I have been able to use my background in finance to produce a number of articles for the site, as well as develop the financial fitness score tool. This is a tool that provides you with practical advice on improving your personal financial health.

Outside of work I am a keen rugby player and used to play up to a semi-professional level before the years of injury finally took their toll.  Now you are more likely to see me in the clubhouse enjoying the game.

Email – james@helpandadvice.co.uk

Linked in – Connect with me

Learn more about pensions in the UK

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Pension drawdown is increasingly becoming a popular way for people to access their pension pot at retirement.  Read about how it works here.

Pension Transfer Advice

When it comes to deciding what to do with your pension, it is best to take advice.  This article discusses what advice will cover.

can i transfer my pension myself?

Some people feel confident enough to want to arrange the transfer of their pension themselves.  This article looks at what you should consider.

Defined Contribution Pensions

Defined contribution pension schemes are what most private sector employees have.  Our guide explains what you need to know about them.

Pension Annuity

A pension annuity gives you a guaranteed income through retirement.  They are still a popular choice.  Read about how they work here.

Pension Sharing Order

When you go through a divorce,  pension sharing order sets out how the pension will be split.  This article explains how they work.

Can I cash in a pension from an old employer

If you have a pension with a past employer, it will still have a value and you will have options with it.  This article looks at what you can do.

Self-Invested Personal Pensions

A Self-Invested Personal Pension is a type of vehicle used by people that want more control over their investments. Read more here.

Pension Transfer Charges

People want to transfer their pensions for a range if different reasons.  This article looks at what the costs could be.

Can I cash in a Frozen pension?

Most people will have a pension with their past employers.  However, you still have a number of options as to what you can do with it.

How to avoid Inheritance Tax in the uK

Avoiding inheritance tax is an effective part of your estate planning.  This article looks at what you can do to reduce tax on your estate.

Frequently Asked Questions

– Can I cash in my pension if I no longer work for the company?

Yes. You can withdraw money from a pension you have built up with an old employer, as any money you have accumulated is yours. Once you are 55, you can access this cash as instalments or a lump sum.

Should I cash in my pension? 

It is ultimately your decision whether or not to cash in your pension, but seeking independent financial advice may help you work out what is best for you and your family. You can speak to your pension scheme provider about the terms of your pension and how cashing in would work according to their rules.

– Can you cash in a pension early? 

Since 2015, you have more freedom to access your pension. Now, you can access your pension pot from age 55 even if you continue to work for your employer.

– Can I cash in my pension before 55?

You must wait until you reach the State Pension age before you can claim your State Pension. Under most circumstances, you cannot take money out of your pension pot if you are under the age of 55. This is a legal requirement. From 2028 the minimum age will rise from 55 to 57.

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