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Just because you can, doesn’t mean you should. When it comes to your money, nowhere is this more applicable, perhaps, than with your retirement savings – and more so if you’re feeling the pinch and wondering how to make up the difference.

A survey conducted for the Financial Conduct Authority (FCA)1 suggests a quarter of consumers would withdraw from their pension savings, if they could, to cover the cost of living.

FCA data also shows an 18% jump in the number of pension plans accessed for the first time in 2021/22, including almost 200,000 – 28% of the total – that were fully withdrawn2.

In large part, this is the because the rules for accessing your pension are in most cases looser than they used to be. Rather than wait until you’re old enough to also draw a pension from the state (66-68, depending on your current age), you can get at your private pension savings sooner – from as early on as 55 (a minimum age that rises to 57 in 2028).

You could even still be working or only partially retired.

That applies to all defined contribution (DC) pensions – which increasingly means most workplace pensions and covers all self-invested personal pensions (SIPPs)3.

However, before you’re tempted in late middle age to start spending your pension, consider the following seven questions:

1) How long might you need the money for?

This money is there to support you in retirement. You may have to rely on it for many years to come. So, if you don’t draw an income from your pension at a sustainable rate you could be left with just the state pension4 to depend on later on in life.  

People often underestimate their life expectancy. The most recent official data, for example, shows that life expectancy at birth in the UK is 79.0 years for males and 82.9 years for females.

That’s still half a life away if you’re in your 50s. It’s a potential underestimate too because many people may yet live to a much older age.

2) What about the tax you could pay?

Are you aware that income drawn from a pension is taxable at your highest rate of income tax? This is over and above the tax-free cash lump sum that we’re all entitled to, which in most cases accounts for 25% of the total.

So, if you take out too much too quickly, on top of any other income you are earning, you could unwittingly incur a high tax bill.

3) What about the tax your loved ones may have to pay?

Your pension falls outside of your estate. Take money out of that pension and it instantly becomes part of your estate. As such, it could incur inheritance tax on your passing.

It’s additional food for thought – especially if you’re just going to park the money in a bank or reinvest it via an individual savings account (ISA).

4) Are you being scammed?

Be careful, having access to large sums of money can leave you vulnerable to scams. Indeed, this was precisely the FCA’s concern when it published its survey.

Beware ‘misdirection’ scam tactics such as free pension reviews and promises of higher returns. If it sounds too good to be true, it probably is.

If in doubt, visit the FCA’s ScamSmart website, which has a tool to help you avoid pension and investment scams. Also visit also the government backed MoneyHelper site, which offers free impartial guidance to the over 50s.

5) What’s the rush?

There can be many reasons why people access their pensions in full. In some cases, it may be because a person’s retirement savings are spread across several pots. Many of these pensions, left over from previous jobs, total £10,000 or less and be classed as ‘small pots’ by HM Revenue & Customs, which means they can be emptied without hindering a person’s ability to continue benefiting from tax-relief on their future pension-fund contributions5.

But there may be subjective or emotional factors at play too. Some people may be concerned that the legislation could change and that they might lose their tax-free entitlement. Or they may just want to take control by accessing their money while they can, as a Department for Work & Pensions study found6.

However, that does not detract from the fact there may be better options out there. Because you don’t have to take money from your pension.

You can, for example, move your retirement savings into a low-cost self-invested personal pension (SIPP), which puts you in the driver’s seat and ensures more of your investment return stays with you. By leaving the money invested, you boost your chances of continued capital growth, potentially maximising your tax-free entitlement.

And if you do want to take money out, you can do so as and when needed rather than in one go.

6)  Would you be better off consolidating your pensions?

Rather than cashing in a pension, even a small one, would you be better served transferring it to a low-cost pension provider and bringing your pensions together?

You can then consider all your retirement investments in the round. Do you have the right mix of bonds and shares? Does your overall portfolio align with your goals?

The bigger your overall pot, the bigger the potential cost savings.

7) How would taking cash align with your goals?

You may have a pressing reason for drawing a large sum from a pension up-front – from helping an adult son or daughter with a house deposit to supporting an elderly relative. Or maybe you want to top-up your income due to higher inflation and growing budgetary pressures.

But that’s ultimately the point – why are you doing it and is it a good enough reason? How does it align with your goals? Do you have other assets that you can draw from?

These are crucial considerations because you have choices when it comes to drawing your pension. Instead of taking the full tax-free cash lump-sum entitlement, for example, you could draw from it gradually to enhance your tax-free income.  

You don’t even need to ‘crystallise’ your pension – the technical term used for cashing in your pension. Some pension providers also offer what are known as ‘uncrystallised funds pension lump sum’ payments (we call ours ‘individual lump sums’). Each ad hoc payment is 25% tax-free, 75% taxed at your marginal rate and would not stop you from continuing to make contributions into your pension as circumstances allowed.

In short, don’t just crystallise your pension for the sake of crystallising it and don’t just raid your pension savings because you can.


1 Conducted by Opinium and based on the responses of 1,009 UK adults aged 40 and over with a workplace or private pension.

Retirement income market data 2021/22, Financial Conduct Authority, 6 October 2022.

3 Early access to your pension savings may also be possible on some defined benefit (DB) or final salary schemes but for that, best check with each pension provider. 

4 The state pension age is under review but currently lies between 66 and 68, depending on when you were born. For more information how it applies to you, use the government’s online tool.

5 Encashing a pension under the ‘Small pot’ rule is permissive legislation, which means providers do not have to provide this. At this moment in time, Vanguard does not provide this option.

Pension Freedoms: a qualitative research study of individuals’ decumulation journeys, 28 October 2020.

Investment risk information

The value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Any tax reliefs referred to in this document are those available under current legislation, which may change, and their availability and value will depend on your individual circumstances. If you have questions relating to your specific tax situation, please contact your tax adviser.

Important information

This article is designed for use by, and is directed only at, persons resident in the UK.

If you are not sure of the suitability or appropriateness of any investment, product or service you should consult an authorised financial adviser. Please note this may incur a charge.

The information contained in this article is not to be regarded as an offer to buy or sell or the solicitation of any offer to buy or sell securities in any jurisdiction where such an offer or solicitation is against the law, or to anyone to whom it is unlawful to make such an offer or solicitation, or if the person making the offer or solicitation is not qualified to do so. 

The information in this article does not constitute legal, tax, or investment advice. You must not, therefore, rely on the content of this article when making any investment decisions.

Issued by Vanguard Asset Management Limited, which is authorised and regulated in the UK by the Financial Conduct Authority.

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