The Case Against Early Release

In the Daily Mail, a 38-year-old person with £150k in their SIPP wants to know if they can access it early to pay off their debts. The Mail’s advisor makes the following points against that option –

  1. Scammers often encourage people to access their pension funds before the age of 55, promising special ways around the rules or great returns on their money. However, this often results in the person losing some or all of their money.
  2. There is a significant tax charge associated with taking money out of a pension before the permitted age. Money that comes out of a pension is subject to income tax, and when you make an ‘unauthorised’ withdrawal, you face an extra tax hit. Such withdrawals can be taxed at up to 55 per cent, depending on what proportion of the pot is withdrawn.
  3. The author suggests that the individual should first speak to experts in managing debts. There are several organizations that offer free or low-cost help and advice, such as StepChange or Christians Against Poverty. They can help to get debts written off completely or negotiate with creditors to allow things like repayment holidays or reduced repayments.
  4. If the individual is in employment, especially with a large firm, they might find that their employer is far more supportive than they would expect. Some workplaces have ’employee assistance programmes’ where staff can get confidential support on a range of areas.

The author concludes by advising that all these avenues are worth pursuing – and exhausting – before contemplating taking ‘unauthorised’ funds out of a pension – “Whilst it is not illegal to access the money in your pension before this date, it is very unlikely to be the best course of action, for a number of reasons.”