Updated: December 15, 2022
Want to understand the rules around SIPP withdrawals? Here’s a complete guide explaining how much you can take out along with the tax implications and penalties.
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Author: Tony Stevens - Finance Expert
Updated: May 13, 2019
If you’ve already got a self-invested personal pension (SIPP) set up, or are thinking about starting one, you may be wondering how the withdrawal process works.
This guide covers all the essential details you need to know about SIPP withdrawal rules. We’ll explain if there’s a penalty for taking money out of a SIPP before the age of 55, how much you can withdraw each year, and also the tax you could pay.
Keep reading for a complete breakdown of SIPP withdrawals or click on a link below to jump straight to a section…
The following topics are covered below...
When you can access a SIPP
Withdrawing funds early
How to take money out of your pension
How much you can withdraw
Do you pay tax on withdrawals?
Speak with a SIPP pension specialist
FAQs
When can you access your SIPP?
The current SIPP withdrawal age rules mean that you have to be at least 55 to access this pension pot. However, this is due to change, and from April 2028 you’ll need to be 57 before you can begin taking money out of your SIPP. Once you reach this age, you can access your SIPP and start withdrawing funds from it, even if you continue working.
Can you withdraw money before you’re 55?
Yes, this is sometimes possible. It’s not illegal to withdraw from a SIPP early. However, because it’s a retirement product, the current withdrawal rules and penalty structure means that it’s likely not in your financial best interest to begin taking money out of a SIPP before 55 (or 57 when the withdrawal age goes up).
Also, some SIPP providers will not allow early withdrawals. This is done to protect your pension, but it’s always worth double-checking and getting specific advice related to your SIPP.
Early withdrawal penalties
The current rules mean that if you begin taking money out of a SIPP before the age of 55, the early withdrawal penalty in place states that HMRC will charge you tax at a rate of 55% on any monies you withdraw. So in most instances, early withdrawal is definitely not advised because you could end up losing over half of your SIPP pension in tax penalties.
If you need access to funds before retirement, it’s worth discussing your situation with an independent financial advisor. They’ll be able to take a complete look at your finances and then instruct you on some alternative ways to access money that do not involve dipping into your SIPP.
Speak to a expert today
Why use us?
At OnlineMoneyAdvisor we're here to make sure everyone gets the right SIPPs first time, whatever their situation or needs.
- SIPPs specialists
- Free and Unbiased Advice
- Personally Matched with an Expert
- No surprise fees
- Rated 'Excellent' by our customers
If you have any questions, feel free to call us on:0808 189 0463
How to take money out of a SIPP
Once you’re approaching or have reached the appropriate age to start withdrawals from your SIPP, there are some important steps to take to help make sure the process is straightforward:
Gather your details
Before taking money out of your SIPP, it’s worth getting to hand as much relevant information as possible relating to your lifestyle, finances, and pensions.
Having all of these details ready will lead to a much smoother retirement planning process. This info will help to create a proper plan for taking money out of your SIPP.
Get advice from an independent SIPP expert
Once you’ve all of your personal details to hand and have an idea about what you want to do during retirement, the next step is to get advice from an independent SIPP specialist.
It’s crucial you do this before making any withdrawals because a skilled advisor will show you the most tax-efficient way to take money out of your SIPP. This will ensure that any action you take fits within the withdrawal rules, avoiding any penalties, where possible, or costly mistakes.
Begin taking money out of your SIPP
After presenting all your SIPP details to an independent pensions expert and receiving advice on the best way to start withdrawing from your SIPP, they’ll give you a step-by-step financial plan.
This will allow you to start taking money out of your SIPP in the most tax-efficient way possible. So, you can begin to enjoy your retirement and the money in your pension knowing you’ve organised things properly.
If you want to review your current and future pension prospects with an independent expert, just make an enquiry. We’ll introduce you to a retirement expert for free, and they can carry out a complete and thorough evaluation of your SIPP plans along with a free pension review.
How much you can withdraw each year
There are no strict withdrawal limits in place and you can take out as much money as you like each year. But, depending on how much you take out each year, there will likely be tax to pay at the marginal rate on your SIPP withdrawals as it would currently be classed as income for tax purposes.
SIPP tax-free lump sum
Once you reach the appropriate age of 55 (or 57 after 2028) to access your SIPP, you can, in most cases, withdraw 25% of the total value as a tax-free lump sum.
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Do you pay tax on withdrawals?
Yes, you may have to pay tax on withdrawals from crystallised funds unless the amount is under your personal allowance tax-free income band. You can also withdraw 25% of the total initial pot as a tax-free lump sum, but any further withdrawals count towards your income for that year.
So, the exact level of SIPP tax you pay will depend on the income tax rules in place once you reach retirement age. This is why getting advice on the latest UK income tax rules before you start taking money out of your SIPP is so useful.
The exact level of tax you pay on SIPP withdrawals will depend on your tax bracket. Taking out more money could push you into a higher bracket, especially if you continue working once you reach the SIPP access age. So, this is definitely something to account for when you’re working out how much money you want to withdraw each year.
Speak with an independent pensions advisor who specialises in SIPPs
The withdrawal rules for SIPPs aren’t overly complicated but they can change over time. And, what’s most important is how taking money from your SIPP affects the rest of your finances in retirement.
The best way to get a proper financial plan as you approach retirement is to discuss your options with a knowledgeable independent financial advisor. Here at Online Money Advisor, we offer a matching service, which means introducing you to a specialist pensions advisor for free.
Just call 0808 189 0463 or make an enquiry. We’ll introduce you to an expert SIPP advisor for a free, no obligation chat and pension review.
FAQs
You can do this but it’s worth getting advice first. A skilled financial advisor will be able to instruct you on the best course of action to take. This may involve transferring your SIPP instead of closing it to avoid an early withdrawal penalty.
Ask A Quick Question
We can help! We know everyone's circ*mstances are different, that's why we work with brokers who are experts in pensions. Ask us a question and we'll get the best expert to help.
Tony Stevens
Finance Expert
About the author
Tony has worked in a vastly diverse array of areas in the pensions industry for over 20 years. Tony regularly writes for trade press, usually on topical and pensions pieces as well as acting as a judge at prestigious national events.
Tony is also a highly qualified Independent Financial Adviser in his own right. His mantra has always been “Hope for the best, but plan for the worst”, and believes that the biggest impact that an adviser can have on a client’s life journey is to take them on a journey from generally having little or no real idea of what their retirement will look like, to giving them the understanding of what their retirement looks like now, then helping them navigate a path to what they want their retirement to be.
