Can I cash in my pension if made redundant? (Important things to know)
Can I cash in my pension if made redundant – I don’t work there anymore, and the money is mine, right?
Yes, the money is yours, but it is within a pension which has a few restrictions, making accessing it a little trickier than other savings.
The main criteria for accessing a pension is your age.
Read on to see what you might be able to do with your pension if made redundant.
Can you cash in a pension early?
This depends on the pension plan.
If it is an occupational pension, you may be able to cash it in early if you leave your job.
If it is a private pension, you may be able to cash it in early if the provider allows it.
It is best to check with the provider to see what the options are.
You may be able to cash in your pension early, but some penalties may be associated with doing so. It’s best to speak with a pension specialist to see if cashing in your pension early is the right move for you.
What happens to your workplace pension if you are made redundant?
Essentially what happens to your pension when you are made redundant is nothing.
Your company will stop paying into it, and unless you do otherwise, your payments will also stop going into it.
It sits there waiting for you to do something with it!
The money invested in the pension fund remains yours as it is in your name.
In general, it is sitting there waiting for you to reach or get close to pensionable age.
Depending on your pension, it might start doing a thing called life styling whereby it starts de-risking itself or, in plain English, moving out of stocks and likely into bonds.
This is to try and smooth the ride as you are getting closer to accessing it.
If you don’t have a life styling element, it will stay the way you set it up.
Once you reach pensionable age, it will start to send out letters to ask you what you want to do next.
Note to self: Make sure you keep all your addresses up to date with all your pension providers!
Working out what you need now and later will help with planning
What could I do with my pension?
You could do 3 to 4 things with your pension if you are laid off from work.
- You can keep it where it is – if you like what it is invested in.
- If you have another job, you could transfer it to your new workplace pension
- Or you could transfer it to a personal pension – if you have one.
The 4th is where you might be able to access if you are over 55. If you have already reached this age, you might be able to take early retirement and access the pension funds.
Combining your pensions can have some administrative advantages with everything in one place, but you need to make sure there are no penalties or loss of benefits if you move it.
If you have a defined benefit pension, you will likely need to take advice before making any changes.
If you were to take early retirement, you would need to ensure that you have enough funds for your desired lifestyle. Otherwise, you might need to return to work if you have got your numbers wrong.
Do the sums before making any big changes
Can I cancel my pension and get the money?
This is only potentially an option if you have only just joined the pension scheme and within the cooling-off period – if they have one.
The bigger question is, what do you want to do with the cash as it will support you in your retirement? Are you cheating your older self of a vital source of income?
As mentioned earlier, the primary way to get your hands on your pension “early” is to take early retirement when you have reached the age of between 55 and 57, depending on your pension.
There are some exceptional cases due to terminal illness where you might access your pension earlier. Still, these usually come with some hefty penalties regarding the tax levels you need to pay on any withdrawals.
If you are considering accessing your pension because of illness, you would be well placed to talk with a financial advisor to see its advantages and disadvantages.
Be careful about burning through your cash too fast – it may need to last a long time.
Summary: Can I cash in my pension if made redundant?
If you are made redundant, your pension sits there waiting for you to take action. Unfortunately, though cashing it in is only available for a few specific reasons like early retirement or terminal illness, you might need to seek financial advice.
Your options are generally.
- You could leave it where it is.
- Transfer it to your new workplace pension.
- Transfer it to your own personal pension.
or
- Another option is to retire early if you are 55 or over.
If you are trying to access your pension early, then it’s worth figuring out how this early access fits in with your overall lifestyle needs, i.e., if you spend all the money now, what will you live off when it’s all gone?
Questions like this will need some thinking and planning over.
Here are a few related ideas when it comes to thinking about pensions.
How do I find out if I have a pension from an old job?
Should I transfer my pension to my new employer?
What happens to my pension when I leave a company?
What is the average pension in the UK, and why this is more or less irrelevant to you!
Anyway, those are my thoughts; let me know yours in the comments below.
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