Only if you’re over 55. If you’re under 55 you can’t legally get hold of your pension savings. This is because pension savings are ‘ring-fenced’ to be used as retirement income.
The government is planning to increase the earliest age you can get at your pension savings to 57 by 2028. The idea is that it stays 10 years behind State Pension Age, which will be 67 by 2028.
Beware of scams
Don’t believe anyone who says you can access your pension savings before 55 without any penalties. It’s a scam. If you try, you’re also likely to face an additional tax bill as HM Revenue & Customs would treat it as an ‘unauthorised payment’.
Even if you are over 55, you should think very carefully before dipping into your pension savings to tide you over in the short term.
Your future income could be smaller
Taking money from your pension savings now will reduce the amount you’ll have to live on in future.
You could pay more income tax
Only one-quarter of the cash you take is tax-free and you’re liable for income tax on the other three-quarters.
Depending on your circumstances, this could put you into a higher tax bracket for the year – meaning you’d pay even more tax.
You could lose most of your tax-free allowance for future pension saving
Pensions are a tax-efficient way to save, but taking cash from your pension savings now could make your future savings less tax-efficient.
You can contribute up to 100% of your salary towards your pension savings and still get tax relief, as long as the combined contributions from you and your employer are below the annual allowance of £40,000 for most people.
Taking cash out of your pension savings can reduce this allowance to £4,000 a year – and this includes your employer’s pension contributions as well as yours. In other words, if you and your employer pay more than £4,000 a year into your pension savings in the future, you’ll pay tax on the amount over £4,000.