When can I retire?
What can I do with my pension at retirement?
Pensions can be quite confusing and many people find it difficult to understand them. It’s important to remember that there are two separate elements to a pension. The first is the amount of money you build up from investing into a pension plan throughout your working life, which is known as your pension fund. The second is the income you take at retirement. When you retire, you can usually take up to 25% of your pension fund as a tax-free cash lump sum. The rest of the money in your pension fund is used to buy a product that will provide you with an income during your retirement.
You don’t have to take a tax-free cash lump sum, you could choose to use all of your fund to provide you with an income during your retirement. Once you’ve paid money into your pension, you will be unable to access it before you retire. A pension is designed specifically to provide for your retirement, so you can’t draw it out if you’re a bit short one month. The government insists on this to balance out the tax savings they give you.
However, just because you can’t spend it, doesn’t mean you can’t control it. Many pension providers now have online services similar to online banking that let you see where your money is and what it is worth. You can also choose where you want your pension provider to invest your money.
In the 2014 Budget it was announced that from April 2015 pension plan holders may be able to access all of their pension fund as a lump sum at retirement. This could have a major impact on any pension planning you make.
However, tax rules may change in the future and the value of your investment can go down as well as up and the value of the pension fund may be worth less than has been invested.
Can I retire early?
Taking the decision to retire early is a big step. Your pension fund will have had less time to grow, and you’re likely to be retired for longer so your money has to stretch a little bit further.
If you’re in a company pension, the rules of the scheme will determine whether you can retire early or not.
Previously, the earliest you could access your pension was from age 55. However, recently there has been a change in when people can draw their pension benefits, after 5th April 2028 depends on when they were born:
| People born before 6th April 1971 | Those born before 6th April 1971 may continue accessing their pension at age 55. |
| People born after 5th April 1971 and before 6th April 1973 | Those born between these dates (age 55-56 on 5th April 2028) will have the opportunity to access their pension from their 55th birthday until 6th April 2028. If this has not been accessed, then the client must wait until their 57th birthday to do so. |
| People born on or after 6th April 1973 | Those born after 5th April 1973 must wait until they turn 57 to access their pension. |
People in some occupations, or people who can’t carry on working because of ill-health, may be able to use their pension fund to buy a retirement income earlier than age 55. For further information contact your pension provider.
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