By Giliker Flynn – Family-run independent financial advisers, helping families make smart, sustainable retirement decisions.
Why Early Pension Access Is Becoming More Common
Since the pension freedoms introduced in 2015, people have been able to access their defined contribution pensions from age 55.
This has led to:
A steady rise in partial withdrawals before retirement
People using pensions to supplement income in their 50s and early 60s
A growing need to balance short-term goals with long-term income security
The flexibility can be a powerful financial tool — but it’s easy to underestimate the long-term impact.
How Pension Access Works in the UK
When You Can Access It
You can normally access your pension from age 55 (57 from 2028).
There are some exceptions for ill-health or scheme-specific protected ages.
How You Can Access It
Tax-free lump sum: Usually 25% of the pot.
Flexible drawdown: Take income as and when you need it.
Uncrystallised funds pension lump sums (UFPLS): Taking money directly from the pot, with 25% of each withdrawal tax-free.
Annuity purchase: Less common early on, more typical later in retirement.
What Happens When You Withdraw
The tax-free element is up to 25%.
The rest is added to your income and taxed at your marginal rate.
Taking taxable withdrawals may trigger the Money Purchase Annual Allowance (MPAA), reducing how much you can pay back into pensions tax-efficiently.
Why Some People Access Their Pension Early
1. Clearing Debt
Paying off expensive loans or credit cards can free up cash flow and reduce stress.
For example, clearing a 10% interest credit card is often better financially than leaving funds in low-yield investments.
2. Paying Off or Reducing a Mortgage
Many people use pension lump sums to reduce their mortgage balance or clear it entirely, lowering outgoings ahead of retirement.
3. Supporting Children or Grandchildren
Helping with property deposits, university costs or other big life steps is a common reason for early withdrawals.
4. Bridging an Income Gap
Some reduce work hours in their late 50s and use the pension to top up income before full retirement.
5. Health or Lifestyle Reasons
If health concerns or lifestyle goals mean enjoying funds earlier, accessing part of the pension can make sense.
The Pros of Early Pension Access
Flexibility — You decide how much to take and when.
Debt reduction — Clearing expensive borrowing can improve long-term financial stability.
Lifestyle choices — You can fund experiences earlier in life.
Estate planning — Drawing funds can reduce IHT exposure post-2027.
Used wisely, early access can be part of a coherent financial strategy.
The Cons and Risks of Early Pension Access
1. Reduced Future Income
Every pound withdrawn today is a pound that won’t grow for tomorrow.
For example, £30,000 withdrawn at 55 could be worth over £60,000 by 67 if left invested with moderate growth.
2. Triggering the MPAA
Once you start taking taxable pension income, your annual allowance for future contributions can fall from £60,000 to £10,000.
This can seriously limit future pension saving potential.
(Important note: taking only the 25% tax-free lump sum does not trigger the MPAA.)
3. Tax Trap Risk
Adding pension income to your salary can push you into a higher tax band, creating an unexpectedly large tax bill.
4. Impact on State Benefits
Large withdrawals can affect entitlement to means-tested benefits or tax credits.
5. Longevity Risk
Accessing funds too early increases the risk of outliving your savings later.
Tax Implications in Detail
Let’s look at an example.
Sarah earns £40,000 and decides to take £40,000 from her pension at 56.
£10,000 (25%) is tax-free.
The remaining £30,000 is added to her salary.
Her total taxable income is now £70,000.
This pushes part of her income into the higher tax bracket, resulting in thousands of pounds in additional tax — far more than she anticipated.
Planning withdrawals carefully can avoid this kind of outcome.
How IHT Changes from 2027 Affect This Decision
From April 2027, unused pension pots will be included in your estate for inheritance tax (IHT).
This means:
Drawing some pension early could reduce the taxable value of your estate.
Gifting funds earlier can start the seven-year clock for IHT planning.
A measured, phased withdrawal strategy can be tax-efficient both now and later.
For some families, this creates a strong incentive to consider partial early withdrawals — but it must be balanced with income security.
Smart Strategies for Early Pension Access
1. Take Only the Tax-Free Cash Initially
Accessing the 25% tax-free lump sum without touching taxable income can give you flexibility without triggering MPAA.
2. Use Phased Withdrawals
Instead of taking one big lump sum, consider spreading withdrawals across multiple tax years to stay in a lower tax band.
3. Time Withdrawals Carefully
For example:
After leaving work but before receiving State Pension
During a sabbatical or part-time work
In years with lower overall income
4. Gifting Strategically
If the goal is to help family, gifting earlier can:
Reduce your future taxable estate
Allow funds to grow in someone else’s name
Take advantage of annual exemptions and the seven-year PET rule
5. Coordinate with Investment Strategy
If your pension remains invested after partial withdrawal, ensure your portfolio still matches your risk tolerance and time horizon.
Case Studies
Case Study 1 — Paying Off a Mortgage
Jane, 57, has a £50,000 mortgage balance and a £300,000 pension. She takes a £50,000 tax-free lump sum to pay off the mortgage, avoiding 6% interest costs.
No MPAA triggered.
Lower outgoings allow her to save more in the final years before retirement.
Pension remains invested for future growth.
Case Study 2 — Supporting Family, Avoiding Tax Spike
Mark, 58, earns £42,000 a year. He wants to gift £40,000 to his daughter for a house deposit.
Instead of taking £40,000 in one year (which would push him into higher tax), he takes £20,000 this year and £20,000 the next.
He stays in the basic rate band both years.
He starts the seven-year clock for IHT.
Case Study 3 — Drawdown for Lifestyle Bridge
Aisha, 56, wants to reduce her working hours at 58 and retire at 62. She plans to use partial pension withdrawals to bridge the gap between work and full retirement, before her State Pension starts.
Structured withdrawals keep her in the basic rate band.
She avoids unnecessary tax and maintains long-term investment growth.
Common Mistakes to Avoid
Taking too much, too soon and eroding your future income.
Triggering the MPAA without realising it.
Ignoring tax band thresholds.
Withdrawing for short-term goals without considering long-term needs.
Overlooking IHT implications after 2027.
Not reviewing your investment strategy post-withdrawal.
Our View at Giliker Flynn
Accessing your pension early can be a smart and flexible financial tool — but only if used strategically.
For some, it can reduce debt, support family and improve retirement readiness.
For others, it can inadvertently shrink future income and create tax traps.
With IHT rules changing in 2027, early withdrawals may become more attractive — but only with careful planning.
We work with clients to model different withdrawal scenarios, tax positions, and estate planning outcomes before they touch a penny.
Practical Next Steps
Review your pension pot size and future income needs.
Consider why you want to access funds — is it essential or optional?
Model the tax impact of different withdrawal amounts and timings.
Decide whether to limit access to the 25% tax-free lump sum.
Factor in IHT exposure under the 2027 rules.
Take regulated financial advice before making irreversible decisions.
Conclusion
The ability to access your pension early is one of the great flexibilities of the UK retirement system. But with that freedom comes responsibility.
Early withdrawals can help with debt reduction, family support, or income bridging, but they can also reduce your future security if done without a clear plan.
A measured, strategic approach can help you get the benefit now without undermining your later years — and position your estate more efficiently under the coming tax changes.
Important: Tax and pension rules can change, and their value depends on your circumstances. Always seek regulated financial advice before making decisions.
Giliker Flynn is a family-run, independent financial advice firm helping people across the UK plan and protect their retirement income with confidence.