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Early access: Considerations for taking your pension prior to retirement


Predicting your financial situation in later life is not an easy task. It’s a tricky equation that balances expectations around your level of income with predictions of your likely expenditure.

A major influence on this equation is the point at which you retire. For many, retirement is the date in the future that marks a significant change in your personal finances, no longer being able to rely on a regular source of income from an employer. It is the time when savings, pensions and other assets that have been building in the background take on a more prominent role.

But there is evidence to suggest that the majority of people are not waiting until retirement to access the savings they have accumulated over the course of their lifetime.

Advance payments

According to analysis carried out by Scottish Widows, more than three-quarters of savers have taken money from their pension pot before they reached the age at which they intended to retire, withdrawing an average of £47,000.

Of those, just over half (52%) had accessed their pension savings within five years of their target retirement age while just over a fifth (21%) started drawing down funds around a decade in advance. This contrasts with 20% who waited until their retirement before taking any funds.

The reasons behind these decisions will vary from individual to individual. Some might justify such a move in light of an assessment of their wider wealth. Others, meanwhile, might feel compelled to lean on their pension savings to help navigate more immediate financial pressures.

In recent years, concern has been expressed that pension funds are increasingly being accessed early as a means of managing the sustained pressure of the cost-of-living crisis.

Careful consideration

The most recent government data revealed a new peak in the reported value of taxable flexibly accessed pensions in the first quarter of the 2023/2024 tax year, with a total of £4 billion withdrawn by 567,000 individuals.

Taking any money from your pension is only possible from the age of 55, which is known as the minimum normal pension age (NMPA). But making the decision to access your pension before your intended retirement date, and before you receive any benefit from a state pension, is a choice that should be carefully considered.

As well as the obvious depletion of the funds designed to sustain you in later life, reducing the amount of money invested in your pension means that any growth will apply to a smaller pot, potentially diminishing what you could expect to receive at retirement.

To illuminate this point, modelling has been conducted to compare the expected growth that the average early withdrawal amount of £47,000 would have generated if it had stayed invested rather than being taken when the individual reached the NMPA.

This calculation suggests that a further five years of investment would translate to an additional £13,925 on average by age 60; an additional £24,661 on average by age 65; and more than £38,000 if left invested to age 70.

Pension limits

Accessing your pension can also carry implications for your tax liabilities. While the first 25% of your pension is typically tax-free (up to a limit of £268,275), the remainder is subject to income tax. This explains why pension withdrawals are often highest in the second quarter of the year after income tax annual allowances are reset.

Accessing taxable income from a defined contribution pension also carries the risk of limiting your future saving capabilities. This relates to the triggering of the Money Purchase Annual Allowance (MPAA) and the removal of the annual allowance. The MPAA limits the amount of pension contributions that you can receive tax-relief on to £10,000 a year. This is significantly lower than the £60,000 annual allowance, which can also be carried forward from three previous tax years if unused.

It is, however, also worth noting that special rules apply to small pension pots of less than £10,000, which do not trigger the MPAA when taken as a lump sum.

Importance of timing

A further consideration is the fact that from 6 April 2028, the normal minimum pension age (NMPA) is set to rise to 57, in line with an increase of the State Pension age to 67 by the end of that year.

For affected individuals who might have planned to begin accessing their pension from the age of 55, this could mean needing to incorporate other savings vehicles, such as ISAs, into their plans to avoid being faced with an unexpected two-year ‘gap’ before pension funds can be accessed.

So, whether it’s a case of managing plans for an early retirement or maximising financial security in your retirement, seeking professional advice can be highly valuable in arriving at a sensible strategy and protecting your precious pension savings.


The information contained within this communication does not constitute financial advice and is provided for general information purposes only. No warranty, whether express or implied is given in relation to such information. Vintage Wealth Management or any of its associated representatives shall not be liable for any technical, editorial, typographical or other errors or omissions within the content of this communication.