Can I Cash In A Pension From An Old Employer

Changing jobs does not mean you have to leave your workplace pension behind for good. The pension you built up with a previous employer remains yours, and depending on the type of scheme and your age, you may be able to access it, leave it where it is or transfer it to another pension.

Whether you can cash in a pension from an old employer depends primarily on your age, the type of pension you have and the rules of the scheme.

Leaving an employer does not normally mean you can immediately withdraw the pension you built up while working there. Instead, the benefits usually remain in the scheme until you are eligible to access them, or you may have the option to transfer them elsewhere.

With a defined contribution pension, you will usually have a pot of money built from contributions and investment returns, less charges. Once you reach the normal minimum pension age, you may have several options for accessing that money, subject to the facilities offered by the scheme.

Defined benefit pensions work differently. Rather than providing a pension pot to withdraw, they normally provide an income calculated under the scheme rules, usually payable for life. Different rules therefore apply if you want to access or transfer these benefits.

You can currently access most private pensions from age 55, including pensions from previous employers. The normal minimum pension age is due to increase to 57 from 6 April 2028, although some people may have a protected pension age that allows earlier access.

You do not normally need to be retired or have stopped working to access an eligible pension. However, the scheme itself may have a normal retirement age, and taking benefits earlier than this can affect what you receive.

Access before the normal minimum pension age is generally restricted. It may be possible in certain circumstances, such as ill health where the relevant legal and scheme conditions are satisfied, or where you have a protected pension age.

Be particularly cautious if someone offers to help you unlock a pension early when none of these circumstances applies. Unauthorised pension access can result in significant tax charges and may also be a sign of a pension scam.

If you are thinking about transferring a defined benefit pension to a defined contribution scheme, additional safeguards apply. Transferring means giving up the benefits provided by the original scheme in exchange for a transfer value.

Where safeguarded benefits are worth more than £30,000, you will generally be required to take appropriate independent financial advice before the transfer can proceed.

You do not necessarily have to use the options offered by your existing workplace scheme. In some cases, transferring the pension to another provider may provide access to different retirement options. However, transferring can also mean giving up valuable benefits, guarantees or protected rights, so these should be checked first.

Taking 25% Tax-Free Cash

You can usually take up to 25% of a defined contribution pension as tax-free cash once you are eligible to access it, subject to your available Lump Sum Allowance and individual circumstances.

You do not have to take the full tax-free amount at once. Depending on how you access your pension, it may be possible to take tax-free cash gradually while leaving some of the pension invested.

Taking money from your pension reduces the amount remaining to provide an income later in retirement. Investment values can also rise and fall where money remains invested.

Cash Lump Sums, Drawdown and Annuities

Pension freedoms provide several ways of taking benefits from defined contribution pensions, although the options available will depend on your provider and scheme.

Cash lump sums - enable you to take some or all of your pension directly. Tax may be payable on the taxable element of the withdrawal.

Pension drawdown - enables you to leave money invested while taking an income or withdrawals when required. The value of your investments can fall as well as rise, and withdrawals will reduce the amount remaining.

Annuities - use some or all of a pension fund to provide contractual retirement income under agreed terms. The income available will depend on factors including the type of annuity selected and the options included.

Special rules can apply to smaller pension pots. A pension worth up to £10,000 can often be taken as a small pot lump sum, provided the relevant conditions are met. Normally, 25% is tax-free, and the remainder is taxable.

What Happens if the Pension Is “Frozen”?

People sometimes refer to a pension from a previous employer as a “frozen pension”, although it may more accurately be described as deferred, dormant or paid-up. It can generally remain with the existing scheme until you are eligible to take benefits.

With a defined contribution pension, the money may remain invested, and its value can rise or fall. With a deferred defined benefit pension, your future benefits will normally be determined by the scheme rules.

Further pension withdrawals beyond any tax-free entitlement are generally taxable as income and could push some of your income into a higher tax band. Taking taxable income flexibly can also trigger the Money Purchase Annual Allowance (MPAA), restricting future tax-relieved contributions to defined contribution pensions.

Before transferring, check any charges and whether you could lose valuable features, such as protected pension ages, protected tax-free cash or guaranteed annuity rates.

Be alert to pension scams, particularly unexpected contact or pressure to transfer quickly. Warning signs include promises of unusually high or guaranteed returns, offers to access your pension early, or investments that are unusual or unregulated.

If you have changed employers several times, it can be easy to lose track of previous workplace pensions. Old statements, payslips and employment records may help you identify the scheme or provider.

Once you have found a pension, ask the provider for information including:

• The type of pension you have
  

• Its current value or expected benefits
  

• Charges applying to the scheme
  

• Retirement and withdrawal options
  

• Any guarantees or protected benefits
  

• Whether the pension can be transferred
  

• Any charges or restrictions associated with a transfer

If you are considering transferring several defined contribution pensions into one arrangement, compare both the old and new schemes carefully. Consolidating pensions can make them easier to manage, but this does not automatically mean transferring is appropriate or will provide better value.

Using the Pension Tracing Service

If you have lost the contact details for an old pension, the government's Pension Tracing Service can help you find the contact details for a workplace or personal pension scheme.

You will need the name of the employer or pension provider. The service does not tell you whether you definitely have a pension with the scheme or how much it is worth; instead, it provides contact information so you can make further enquiries.

Once you have identified the provider, contact them directly and provide as much information as possible about your employment and previous pension membership.

My Pension Expert's experienced advisers can help you understand the pensions you have accumulated and explain the options available. They will consider your existing pension arrangements, retirement plans and wider financial circumstances before making a recommendation.

This article is for general information only and does not constitute financial advice. Pension and tax rules depend on individual circumstances and may change in the future.