A favourite ploy of scammers is to offer retirement savers access to their pension cash before they reach the age of 55 – but there are some special circumstances that allow early pension withdrawals.
Anyone can take cash from their pension once they are 55 years old – including expats with SIPPs and QROPS that follow pension freedom rules.
Under 55, the major exception is for a retirement saver suffering serious ill-health.
The rules allow this even if the saver has agreed a higher selected retirement age with their pension provider.
In a few cases, savers with a protected pension age because they started saving for retirement before April 6, 2006 can also access their pension cash early.
Serious illness means the retirement saver is expected to live for less than a year.
To trigger release of pension cash, the fund, or total of several funds, must also be less than the lifetime allowance, currently £1.055 million rising to £1.073 million from April 6, 2020.
The early access arrangement does not apply to the state pension.
Early retirement because of ill-health
To qualify for a pension payment under 55 years old, the saver must show that they are incapable of carrying out any job due to ill-health, not just the job they have.
To complicate matters, different providers will have their own rules about proving someone cannot work due to ill-health.
Expats relying on an online consultation with a doctor or with a doctor based overseas must make sure that the medical practitioner is fully registered in the UK under the Medical Act 1983.
Regardless of their expertise, if the doctor does not meet this test, their evidence could be disregarded by a pension provider.
What does an early retirement pension pay?
Broadly, the benefits of early retirement are the same as if the scheme had run past the member’s 55th birthday.
The point to bear in mind is the fund will be smaller than projected at full term, so the benefits paid are lower and the 25% tax-free lump sum remains in place.
Pension freedoms will apply, giving the option of taking the full fund, part of the fund or a regular income.
Like other pensions, tax is paid on any cash withdrawn above the tax-free lump sum threshold.
Does the cash have to be repaid on recovery from illness?
If the retirement saver recovers from illness, each provider will have separate rules about what to do.
Many schemes will stop payments until the saver reaches their 55th birthday.
HM Revenue & Customs has no formal rules or guidance about what providers should do in these circumstances.