Can I use my pension to pay off debt?

To find out all the options you have for repaying debt, it’s best to talk your situation through with a trained adviser.  

Use our Debt advice locator tool to find free and confidential debt advice online, over the phone or in your local area.  

See our guide Help if you’re struggling with debt for more information and join our private Debt Support Community Facebook groupOpens in a new window for support from others.

You can usually only access your pension after you’ve reached age 55 (57 from 2028). If you’re younger than this, don’t wait – your debts can get bigger over time because of interest. 

You should also check if you can repay debts by increasing your income instead. Our Benefits calculator will show if you can get any extra payments or grants.

Here are other things to consider.

If you have a defined contribution pension (the most common type), taking money from your pension now would mean there’s less to pay you a retirement income. You might also miss out on investment growth for that money and have fewer options when you retire. 

If you have a defined benefit or final salary pension, the earlier you take your pension, the less you’ll typically get per year. This is because it’s likely you’ll receive it over a longer period. 

This all means you’ll usually give up long-term security to access cash now.  

If you’re 50 or over and have a defined contribution pension, you can book a free Pension Wise appointment to help you understand your pension options.

If you get certain benefits, like Universal Credit or Pension Credit, an increased income might reduce or even stop your payments – even if you use all the money to repay debts. 

Before accessing your pension, speak to a free benefits specialist to check how you’ll be affected. Advicelocal lists organisationsOpens in a new window that provide free and confidential advice near you.

If you take money from your pension, usually 25% of it is paid to you tax-free. Anything above this will be taxed based on usual Income Tax rules.  

You might also need to pay more tax if you’re still paying into a pension pot. When you and your employer contribute to your pension, the amount you would have paid in Income Tax is also added, known as tax relief.  

Including the tax relief, you can usually pay up to £60,000 of pension contributions per year or up to 100% of your earnings if this is lower. But if you take more than the 25% tax-free element of your pension, this limit can reduce to £10,000 – known as the Money Purchase Annual Allowance (MPAA).

Any money held in your pension is usually kept separate from the rest of your finances. This normally means no one else can claim it, even if you: 

• are declared bankrupt, or 
• have a debt repayment plan, like a: 
  • Debt Management Plan (DMP) 
  • Debt Relief Order (DRO) 
  • Individual Voluntary Arrangement (IVA). 

But if you take money out of your pension, you might be told to use it to make regular repayments. In some cases, a creditor might be able to take entire lump sums. 

Before taking money from your pension, talk through your situation with a free debt adviser.