She said: “The rules are complicated, but generally to keep a protected pension age the pension saver has to transfer from the scheme at the same time as at least one other member, to the same pension scheme. So, if they transfer on their own they will lose the protected age.
“Because protection is lost on transfer, some people may find they are restricted to the pension options offered by the scheme they are in. That may mean they can’t access drawdown and may find they only have the option to buy an annuity.”
If you are blocked from using “drawdown”, you will find your options on how to spend your pension extremely limited. After taking the tax-free element you would likely have to buy an annuity, paying a fixed income for life, with no guarantee over the rate or death benefits.
However, these rules may not necessarily apply so it is worth checking the conditions of your own scheme.
Poor health
If you need to retire early due to ill health, pension plans will allow you to access your money before the age of 55, 57 or whatever a future pension age is.
Pension providers manage this scenario differently. Some will let you access your savings if you can no longer work in your current job.
“But sometimes a scheme might insist a person must be incapable of carrying out any occupation (not just their own occupation), so it’s always best to check with the pension scheme,” added Ms Vahey.
In some instances, “defined benefit” pension schemes – which pay a guaranteed income for life – reduce the amount you are paid if you take your pension early, but this is often waived if you are accessing it due to ill health.
Serious ill-health may mean you can access your pension tax free if you have not used up tax allowances and this is the first time you are accessing your pension. Be warned – if you are over 75 a lump sum may be taxed as earnings.
Either way, you will need to provide supporting medical evidence in order to access your pension early.
However, if you have an “income protection” plan – sometimes called permanent health insurance – it is worth considering whether you need to access your pension early, warns MoneyHelper, a government money guidance service.
Accessing your pension early could reduce the payments you get through your insurance and leave you worse off.
Ms Vahey adds, “If someone is seriously ill and expects to live for less than a year, then they can take all their untouched pension benefits as a tax-free lump sum, although there is a limit.”