Can I transfer my pension to my bank account?

You may have heard that transferring your pension can come with a number of benefits. And these benefits are specific to moving your savings to another pension scheme. So, what about if you want to transfer your pension to your bank account?

In this case your funds can’t be transferred so easily. To move your savings to a bank account you would need to withdraw your funds and that comes with some downsides that you would need to consider. It’s also a good idea to look at the differences between how a pension and a bank account work.

Inflation and interest rates

By moving savings from your pension to your bank account, your money becomes vulnerable to inflation and poor interest rates. Whereas, if you kept your savings in your pension, the return you would receive from your investments would be higher than the interest rate on your bank account and be enough to cover the impact of inflation. Although, a standard bank account is generally a lower-risk environment for your savings compared to a pension.

Tax and pensions

When you contribute to your pension, you receive additional tax relief from the government, giving your pension a nice boost. Any payments you make into a bank account don’t receive any bonuses, so it makes sense to keep saving in your pension.

You also receive tax breaks on your pension. This means that any growth on your savings doesn’t get taxed, whereas it’s fairly common for this to be the case for many bank accounts.

Tax and withdrawals

As you know, to move your savings to your bank account you would need to withdraw them from your pension. Any money you withdraw from your pension, after your tax-free cash allowance, is taxable as income and taking your whole pension in one go would push you into a higher tax bracket and result in a large tax bill. And no one likes giving the taxman more than they must.

This is why it makes sense to only withdraw what you need from your pension and to keep this amount below your annual tax allowance.

Releasing pension money early isn’t right for everyone as it will leave you worse off in retirement. Tax treatment depends on your individual circumstances and may be subject to change.

Compound interest

Pensions use something called compound interest. The way pensions are set up puts you in a much stronger position to take advantage of compound interest. And Einstein called compound interest the eighth wonder of the world.

But what if I need to move my pension fund to my bank account?

If after taking everything into consideration you still feel that you would like to withdraw your whole pension fund into your bank account, the best thing to do would be to speak to a financial adviser. They can help you understand what this means for you and help you to know your options.