Blog » Early pension withdrawal: navigating the pros, cons and key considerations

Early pension withdrawal: navigating the pros, cons and key considerations

May 13, 2024
The details provided in this article are for general information only and are in no way deemed to be financial advice. All of the material is correct as of the publication date, but could be out-of-date by the time you read the article.

Retirement planning is a crucial aspect of securing your financial future, and pensions play a significant role in ensuring a comfortable life after bidding farewell to the working world. In recent years, pension freedoms have opened up new opportunities for individuals aged 55 and above to access their pension pots early. While the prospect of early pension withdrawal may seem enticing, it’s essential to carefully consider the pros, cons and key factors before making any decisions.

Meet Sarah, a 57-year-old nurse who has been diligently saving for her retirement. With her children grown up and her mortgage paid off, Sarah finds herself wondering if she should take advantage of the pension freedoms and withdraw a portion of her pension to fund a long-awaited dream holiday. Before making any hasty decisions, Sarah decides to seek professional advice to fully understand the implications of early pension withdrawal.

Understanding the basics of early pension withdrawal

Under current UK regulations, individuals aged 55 and above, with eligible pension schemes, can access their pension savings early. This applies to defined contribution pensions, such as personal pensions, stakeholder pensions, and most employer schemes. It’s important to note that you can typically withdraw up to 25% of your pension pot tax-free, while the remaining 75% will be subject to income tax at your marginal rate. In fact, since 2018, over 1.9 million pensions have been accessed for the first time.

While the idea of having access to a lump sum of money may be tempting, it’s crucial to note that taking pension money early is not suitable for everyone, remember that any amount you withdraw from your pension early will reduce the funds available to you in retirement. This is where seeking guidance from a regulated financial adviser can be invaluable in helping you make an informed decision tailored to your unique circumstances.

Reasons for considering early withdrawal

There are several reasons why someone might consider withdrawing from their pension early. These include:

  1. Financial hardship: unexpected life events, such as job loss, illness or significant expenses may push individuals to seek early access to their pension savings.
  2. Debt repayment: some people may view their pension as a means to pay off outstanding debts, such as credit card balances or loans.
  3. Home improvements: early pension withdrawal could be seen as a way to fund renovations or upgrades to one’s property.
  4. Providing financial assistance to family members.
  5. Pursuing a lifelong dream, holiday or passion project: some individuals may be tempted to use their pension savings to pay for a once-in-a-lifetime opportunity or adventure.

In some cases, accessing pension funds early can provide a much-needed financial boost, allowing individuals to tackle immediate financial concerns or seize once-in-a-lifetime opportunities. However, it’s essential to weigh these potential benefits against the long-term impact on your retirement income.

Considering the drawbacks and risks

While early pension withdrawal may offer short-term advantages, it’s crucial to understand the potential drawbacks and risks involved:

  1. Reduced retirement income: withdrawing funds early means less money available to generate income in retirement, potentially leading to a lower standard of living in your later years.
  2. Tax implications: Apart from the tax-free lump sum, any additional withdrawals will be subject to income tax at your marginal rate. This could result in a significant tax bill, especially if the withdrawals push you into a higher tax bracket.
  3. Impact on means-tested benefits: early pension withdrawals may affect your eligibility for certain means-tested benefits, such as Universal Credit or Pension Credit.
  4. Investment risks: if you opt for flexi-access drawdown or take lump sums, your remaining pension funds will stay invested and be subject to market fluctuations. Poor investment performance could further reduce your retirement savings.
  5. Longevity risk: with increasing life expectancies, there’s a risk of outliving your pension savings if you withdraw too much too soon.

Take the example of Mark, a 60-year-old engineer who decided to withdraw a significant portion of his pension to fund his daughter’s wedding. While Mark was happy to help his daughter, he later realised that the withdrawal had pushed him into a higher tax bracket, resulting in a substantial tax bill. Moreover, the reduced pension pot meant that Mark had to adjust his retirement lifestyle expectations to account for the lower income.

Exploring alternative options

Before rushing into early pension withdrawal, it’s wise to consider alternative options that may better suit your needs:

  1. Debt management: if debt is the primary reason for considering early withdrawal, seeking professional debt advice and exploring repayment plans or consolidation could be more suitable solutions.
  2. Budgeting and saving: reviewing your current expenses, creating a budget and finding ways to boost your short-term savings could help alleviate financial pressure without compromising your long-term retirement plans.

The importance of regulated financial advice

Given the complexities and potential consequences of early pension withdrawal, seeking guidance from a regulated financial adviser is crucial. A qualified professional can help you:

  1. Understand the different pension withdrawal options available to you
  2. Assess your current financial situation and future retirement goals
  3. Evaluate the potential tax implications and impact on your long-term retirement income
  4. Develop a personalised retirement plan that takes into account your unique circumstances and objectives

By working with a regulated financial adviser, you can make an informed decision that balances your short-term needs with your long-term financial security. Remember, your pension is a vital component of your retirement planning, and any decisions made today can have a lasting impact on your future financial well-being.

Early pension withdrawal can be a tempting prospect, offering a way to access funds for immediate needs or desires. However, it’s essential to approach this decision with caution and a clear understanding of the potential consequences. By carefully weighing the pros and  cons, and seeking guidance from a regulated financial adviser, you can make an informed choice that aligns with your unique circumstances and long-term retirement goals.

Before making any decisions about your pension, it’s wise to gather as much information as possible. Why not request our free pension information pack to gain valuable insights into pension freedoms and how they could benefit you? Our pack also explains what a no-obligation pension check entails and how you could take advantage of this service to better understand your retirement options.

Don’t let short-term temptations jeopardise your long-term financial security. Take the time to explore your options by visiting our pension withdrawal: A-Z guide and develop a retirement plan that sets you up for a comfortable and fulfilling future.

Get started on your journey to a brighter financial future by requesting your free pension information pack today!

Related posts

Thinking about your pension options?

We are authorised and regulated by the Financial Conduct authority. This means we can help you to make the best possible decisions when it comes to your pension.

0800 009 3388
Mon-Fri 9am-5pm


Pension Access is a trading name of Harbour Rock Capital Limited which is registered in England & Wales as a Limited Company, No. 10290349. Authorised and regulated by the Financial Conduct Authority, No. 754580. Registered Offices: Affinity House, Beaufort Court, Sir Thomas Longley Road, Rochester, Kent, ME2 4FD. Telephone: 0800 009 3388. Email:
© 2024 Pension Access. All right reserved.
What's in your info pack?
Your FREE information pack contains all the information you need to make an informed decision on wheter or not taking tax free cash from your pension is right for you.
Get your Free Info Pack
Complete the form and we'll send you an information pack in the post
Note: We are unable to advise on the state pension or any pension you are already taking an income from.

    Get your free info pack

    Where should we send your info pack?

    Please complete your details below and we'll send your information pack in the next available post

    Find Your address

    Type in your postcode or start typing your address then select from the drop-down list

    Your address

    We'll post your information pack here

    Keeping in touch

    We'll send you updates by email or text message. One of our specialists may call, just in case you have any questions about your pension. We’re big believers in never bombarding people with calls.

    Safety PadlockYour information is safe with us. Our calls are recorded for regulatory, legal and training requirements. Please see our privacy notice for information on our data practices here


    Hands using calculator to calculate home equity amount