I'm 55 and want to cash in a £50,000 pension: Why am I being told to wait until age 60? STEVE WEBB replies

I have an old workplace pension currently held with Aon from when I worked in a business from the ages of 18 to 25.

I never paid into this pension but it has accumulated over £50,000 from company contributions and interest over the years.

I turned 55 in July and was hoping to cash in the pension.

I've taken early retirement as I am suffering from the lasting effects of cancer treatment for head and neck cancer.

But Aon has told me I can't take the money out until I am 60.

Can you advise if there is any possible way for me to access this money early.

Steve Webb replies: I was sorry to read about the health problems that you have had, and can understand why you would like to be able to access your pension pot.

I have contacted Aon on your behalf and there may be a solution, but let me first explain the problem.

Most modern 'pot of money' or defined contribution pension arrangements are simply an accumulation of money paid in by you and your employer, topped up by tax relief, and invested to grow.

When you reach Normal Minimum Pension Age – currently 55, but set to jump to 57 on April 6, 2028 – you can generally access all of your accumulated pension pot if you wish.

However, some older DC pensions, such as yours, have additional features which make matters more complex.

In your case, the scheme was 'contracted out' of Serps – the state earnings-related pension scheme.

This meant that you built up rights under the workplace scheme instead of part of your state pension.

In return for being contracted out (which meant your employer paid a reduced or 'contracted out' rate of National Insurance contributions), the scheme had to provide a benefit at least as good as the Serps pension you had given up.

This is known as a Guaranteed Minimum Pension or GMP.

The catch with the GMP is that the scheme only had to deliver it at state pension age, which for women at the time was 60.

If the pension pot already had enough money in it to deliver the GMP, then even though you are 55 you could have taken the money out.

But you have been told that your current fund value (excluding your own additional voluntary contributions) is roughly £49,000, whereas it would cost around £64,000 to cover the cost of the GMP.

On that basis, the scheme could not currently meet its promise to pay your GMP and so you cannot take your money out.

Can you cash your pot anyway?

There is however a potential way round this problem.

The administrators have confirmed that you could, in principle, apply to transfer your pension to another provider.

The new provider would not be under the same obligation to provide a GMP, so you could potentially access your money now.

And the scheme has indicated that the 'transfer value' it would be willing to offer would reflect the full value of your GMP.

In fact, it has offered you a transfer value of around £68,000, which also includes a small amount for the additional voluntary contributions you have paid in.

But there's a catch.

Because you are giving up what are called 'safeguarded benefits' – in this case the right to a GMP – and because the value of your rights is over £30,000, you cannot transfer without first taking financial advice.

This is unlikely to be cheap and could cost you several thousand pounds.

The purpose of this advice requirement is to make sure that you understand the value of what you are giving up, and also can consider what other options you may have, before going ahead with any transfer.

If the adviser were to recommend against a transfer for some reason, you would still be entitled to go ahead in any case.

In this case you would become what is called an 'insistent client'. There is nothing to stop you doing this, though you may find that some pension providers will refuse to accept funds transferred on an insistent basis.

In summary then, it does appear that there is a way round your problem, but it involves transferring out of your current scheme and first taking financial advice.

I obviously cannot tell you whether you *should* do this or not, and you should carefully consider the financial advice that you receive before deciding whether or not to go down this route.

What does Aon say?

In response to my inquiries on your behalf, Becky McGowan, senior partner at Aon, said: 'Your reader is in a type of pension scheme that was set up in the 1990s.

'The scheme has distinct rules and member protections that, unfortunately, are now affecting the choices available to her for accessing her benefits.

'She wants to retire early. Currently, she has two options available to her, either waiting until age 60 to retire, or transferring out of the scheme.

'If she wants to transfer out, the law requires her to take IFA advice. An IFA would also help her to understand the 'big picture' options available to her and the financial implications of her retirement choices.

'Aon and the scheme's trustees will be doing all we can to help her with the option she chooses to pursue, but we need to follow the laws that have been put in place to help protect pension scheme members.'

You have told me that you will be going ahead with seeking advice on a potential transfer and I hope that this helps to give you clarity about the best way forward.

Ask Steve Webb a pension question

Former Pensions Minister Steve Webb is This Is Money's Agony Uncle.

He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.

Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.

If you would like to ask Steve a question about pensions, please email him at pensionquestions@thisismoney.co.uk.

Steve will do his best to reply to your message in a forthcoming column, but he won't be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.

Please include a daytime contact number with your message - this will be kept confidential and not used for marketing purposes.

If Steve is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on pensions to the public. It can be found here and its number is 0800 011 3797.

Steve receives many questions about state pension forecasts and COPE ¿ the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve's several earlier columns about state pension forecasts and contracting out, which might be helpful.  

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