Pension release or pension unlocking
Pension release (also known as pension unlocking) means taking money out of your pension scheme(s) before you retire. Some ways of doing this are legal, others are not. If you’re 55 or over you can legally access the money in your pension schemes(s). But if you are under 55 normally you can only do this if you have very poor health.
Beware of pension scams
You may see adverts which talk about early pension release, pension unlocking or even pension loans, but if they say you can unlock your pension before age 55 they are illegal, have hefty charges and are scams which can cost you dearly. Steer clear.
Here are things to look out for:
- being approached out of the blue over the phone or via text message
- pushy advisers, often unregulated, saying they can help you access your pension before age 55
- companies that offer a ‘loan”, ‘saving advance’ or ‘cashback’ from your pension
- any reference to ‘loopholes’, overseas investments or creative or new investment techniques
Don’t get caught out by unlocking your pension before you’re allowed to – Read our guide How to spot a pension scam.
Normal retirement age
The age at which most people start to take money from their pension schemes is set by the rules of the particular workplace pension scheme, personal or stakeholder pensions, the date chosen when the pension started. The age is often 60 or 65, but could be lower.
Legally, you are allowed to start withdrawing money from your pensions from age 55 although not all schemes will let you do this. You might have to transfer to another scheme before you can access your money. Talk to your pensions administrator, trustee or to your employer to find out your options.
Early pension release warning
Think carefully before deciding to take money out early from your pension scheme(s) even if it is legal. You will almost definitely receive less than if you had left your pension invested, and you may not leave yourself with enough income to see you through retirement.
The new rules from April 2015 mean you have more choices about how you access your pension pot than you did in the past, so make sure you consider all your options. See our guide Options for using your pension pot for more information.
Pension unlocking is only suitable for a small number of people and only in some circumstances, for example if your health is very poor, reducing the time you expect to live.
Deciding if unlocking your pension is right for you
If you’re 55 or over, haven’t reached your normal retirement age, but are still considering accessing some of your pension pot, get answers to the following questions first:
- how much retirement income would I get now and how much would I get if I left all the money in my pension until my retirement age?
- would the reduced income in future be enough to meet my living expenses?
- do I really need to raise extra cash now?
- what benefits could I be giving up – for example, ill-health benefits or death benefits?
- would I have to pay penalties if I unlocked my pension?
- how much would I have to pay in charges to get my money early?
- how much would I have to pay an adviser?
- what ongoing charges might there be?
- is there another better way that I could raise the money I want?
Before proceeding make sure you take advice from a financial adviser. They have to follow certain rules and must only recommend a product which is suitable for you. If you buy without advice you have very little protection if the product turns out to be wrong for you, or even worse, is a scam which loses all your money.
You can find FCA registered financial advisers who specialise in retirement planning in our Retirement adviser directory.