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 April 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.

If you have a defined contribution pension, 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 pension (often called a final salary or career average scheme), 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 have a defined contribution pension, we offer free Pension Wise appointments to help explain 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 lump sums from your pension, usually 25% of it is paid to you tax-free – as long the total amount of tax-free cash taken from all your pensions is not higher than the lump sum allowance (£268,275 for most people).

The other 75%, or any money taken as regular income, counts as earnings and is added to your other income to calculate how much Income Tax you need to pay for that tax year (6 April to 5 April).  

This means you might move into a higher Income Tax band by taking money from your pension to repay debts. You can see the Income Tax bandsOpens in a new window and Scottish Income Tax bandsOpens in a new window on GOV.UK. 

When you pay into a pension, the government usually adds a top-up payment called tax relief. This is the money you’d normally pay in Income Tax.  

You can usually get tax relief on all your pension contributions up to the annual allowance. For most people, this means:   

• your contributions must be less than (or equal to) the amount you earn, and   
• contributions from you and your employer, including tax relief, must be no more than £60,000.   

But if you take taxable money from your defined contribution pension, the £60,000 limit might reduce to £10,000. This is called 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) 
  • 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.