If you want to withdraw money from a SIPP before the age of 55 (rising to 57 in 2028), there are very limited circumstances where this is allowed, and it typically comes with significant penalties or tax charges. Here's what happens if you attempt early withdrawal:
1. Severe Tax Penalties
Withdrawing from your SIPP before age 55 without a valid reason would normally trigger unauthorized payment charges. These charges are very high, up to 55% of the amount you withdraw, and include:
Unauthorized payment tax charge: 40%
Unauthorized payment surcharge: An additional 15% may apply if the total unauthorized payments exceed a certain limit.
These penalties are designed to discourage people from accessing their pension savings early, as the funds are meant for retirement.
2. Special Circumstances (Serious Ill Health or Terminal Illness)
Serious Ill Health: If you’re diagnosed with a serious or terminal illness and your life expectancy is less than 12 months, you may be able to access your SIPP funds before age 55 without penalties.
In such cases, you may be able to take your pension as a lump sum, with 25% of it being tax-free and the rest subject to income tax.
Severe Disability: If you are unable to work due to a serious disability, you may be granted early access to your pension. You would need medical proof and approval from your pension provider.
Please note that any request for early withdrawal has to be for a specific reason. Early withdrawals may have serious tax implications and have to be reviewed both by Plum and HMRC for every single case. This means that the early withdrawal is not guaranteed and may be rejected.