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Can I Cancel My Pension and Get the Money?

Written by, Marija Petkova

Updated September, 7, 2022

Most employees have a pension plan that’s meant to fund their retirement years. But, what if you want to access those funds now?

Can I cancel my pension and get the money?

Let’s find out.

When Can You Take Money Out of Your Pension?

The rules for withdrawing money from your pension pot depend on the type of pension plan that you have and in some cases, your circumstances. 

Personal pension

In most situations, anyone with a personal pension can take out their money from the pension fund once they turn 55. Cashing in pension funds at 55 is possible, but you’ll have to make sure that your “selected retirement age” is set at 55. 

You can usually withdraw up to 25% of the fund from the personal pension pot as a tax-free lump sum, regardless of how large or small the pension pot is. 

There are four primary alternatives to taking the rest of your pension: invest it, set it up as regular monthly income, use it to purchase an annuity, or cash it in. 

Ill-Health Retirement

In cases of medical retirement, the minimum retirement age of 55 doesn’t apply.

If you’re unable to work, you may be able to start taking an income from your pension pot. If you’re seriously ill and have a life expectancy of less than a year, you might be allowed to take all of your pension as a tax-free lump.

To withdraw your pension early due to poor health, you need to provide supporting medical evidence and approval from your employer. In most cases, only employees who have been in continuous employment for at least 2 years can retire early.

Opting Out of Workplace Pension

Here’s how you can opt out of your workplace pension.

If You Haven’t Been Automatically Enrolled

If you’re not automatically enrolled in a workplace pension you can opt out by providing an opt-out notice to your employers. You would usually have to ask for an opt-out form from your pension provider, fill it in, and then hand it over to your employer. 

The form usually requires the name of the employee, contact information, and the reason for opting out.

If You’ve Been Automatically Enrolled

The process of opting out of auto-enrollment is similar. You need to ask your pension provider for an opt-out form, fill it out, and give it to your employers.

If you’re employed, you can ask your employer for the contact details of the pension provider. 

If you’ve been automatically enrolled into a workplace pension, you’ll get your money back or have your pension funds transferred to your bank account only if you opt out within a month. If you miss the deadline, the funds will remain in your pension pot.

Can You Opt Back In?

You can join or rejoin a workplace pension at any time. Employers cannot refuse requests from employees to be added to the pension scheme, regardless of whether they are eligible for automatic enrollment.

What Happens if You Leave Your Defined Benefit Pension Scheme

If you leave your defined benefit pension scheme within 2 years of joining, you may be able to get some or all of the payments you made. 

However, that’s rarely the case if you’re a member of a public sector pension scheme. What’s more, returned contributions are taxed at 20% on the first £20,000 and 50% on the remaining cash. 

What Happens if You Leave a Defined Contribution Workplace Pension

If you leave your job within 30 days, you can ask for a refund. If you leave after 30 days, the pension fund will remain in your pension pot.

Can You Cancel a Personal Pension?

Anyone can cancel a personal pension as long as they do so in the cooling-off period, which usually lasts around 14 days.

You can stop contributing to the pot or transfer your pension to a different scheme.

If you still want to cancel your pension or close it before you retire, your whole pension fund will be taxed at 55%, regardless of your income tax.

Bottom Line

Cancelling a pension plan is doable, but it’s a process that comes with plenty of restrictions,  regulations, and many potential consequences. If you’re considering cancelling your pension plan, it’s important to consult with an expert and weigh all of the potential risks and rewards involved.

                           

Frequently Asked Questions And Their Answers

What happens when I cancel my pension?

If you cancel your pension and want to withdraw the funds, you’ll have to pay taxes on the entire amount. If you’re over 55, you can withdraw 25% of the money as a tax-free lump sum. 

Can I sell my personal pension plan?

Pension plans can be sold for a cash lump payment, but selling a pension usually comes with a significant tax bill.

Can I cancel my pension and get the money?

It is possible to cancel your pension and get the money, but whether you should do it or not depends on your age. Cancelling a pension is not advisable for people under the age of 55.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.