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I want to use my pension for my honeymoon – I need the money more now, not when I’m old.

I want to use my pension for my honeymoon – I need the money now

We ask consumer money experts Which?, as part of Talk Money Week, to answer the following question. Join in the conversation on Twitter and tell us what you would advise. 

Question

I’m a recently married 35 year-old, and we’re doing ok but not so well we could afford a proper honeymoon.

The big problem is that I have £6,000 on a credit card, and I’m pretty much only covering the interest on it. It’s so frustrating.

However, last week I discovered a company that said I can take out what I’ve put into my pension so far. I checked them on a customer review site, and they got 5 stars, so they seem legit. I’ve been putting in a % of my pay cheque consistently for 12 years and have around £10,000 in my pension pot.

The reality is, is that I need that £10,000 more NOW, than when I’m at retirement age, with a lifetime of savings. This £10,000 will get rid of my debt, and allow my wife and I to have a little honeymoon. It would be a fresh start, and I still have plenty of time to save up for my retirement – I’m hardly old!

The thing is, my wife is a little nervous about this. She thinks you shouldn’t play with your pension, but at the end of the day, it’s our money – and we need it now.

Answer

Gareth Shaw, Which? Money Expert, says: I’ll get straight to the point, you should listen to your wife. Those were very wise words when she said: “you shouldn’t play with your pension”.

While it may be tempting to touch the money in your pension pot, it will come at a huge risk that may not have the financial payoff that you are expecting.

Here’s why?

Pensions are a way of saving for retirement, so whether you have a workplace or personal pension, the money you put away each month is intended to become regular income when you retire.

In 2015, the Government introduced pension freedoms, which means it’s possible to access your pension from the age of 55 in a variety of ways (e.g. income drawdown, an annuity or taking the lot in one go). But, each of these options come at a risk and will impact your final retirement income.

However, you are considering unlocking your pension fund before you turn 55, which is an invariably risky move. While it is not illegal, unlocking your pension before you reach 55 is not advised by financial experts.

Companies that allow you early access to your pension, usually demand a fee of up to 30% of the amount you withdraw and you’d also be hit with a hefty 55% tax bill, as it is seen as an unauthorised payment by HMRC.

So if you are hoping to withdraw £10,000 from your pension, you’d only be left with around £3,150 once the company and taxman have taken their share. Essentially, you’ll pay more in fees than you’ll receive from the payout.

Pension unlocking companies can range from dodgy financial advisers to outright scammers, so I’d be suspicious of the five-star rating on their website. Also, they are often not authorised by the Financial Conduct Authority, so if something were to go wrong, you wouldn’t be protected.

Don’t forget you’ll need a healthy pension pot to retire comfortably and you shouldn’t underestimate how long it’ll take to save a reasonable sum.

Alternatives

Instead of using your pension to pay off current debts and fund your honeymoon, there are other options to consider.

You could apply for a 0% balance transfer credit card and move your existing debt onto this card that’ll allow you to pay it off monthly without interest, over a longer period of time, though you may be charged a transfer fee. Some of the longest interest-free deals last for nearly three years, which gives you time to help you clear the debt.

But make sure you understand the terms and conditions. You could be charged interest if you make any purchases on this card and it’ll revert to a standard rate once the deal ends, so you’d need to pay it off before or switch to another deal.

Alternatively, you could look at taking out a personal loan, as these usually have competitive rates.

The main benefit with this option is that you’ll know how much to pay back each month and how long it’ll take to pay off the debt.

Use our Debt Advice Locator tool to find free independent advice face-to-face, over the phone or online. 

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