The minimum age to access personal and final salary pensions is 55 (and this will rise to 57 in 2028).
The minimum aged used to be 50, but this was raised to 55 in 2010.
There are some limited exceptions to the age 55 rule.
If you are in poor health and are too ill to work
If you are in very poor health with a life expectancy of less than 1 year
If you have a ‘protected pension age’ from a scheme you joined before 6th April 2006
You will need to speak to your pension provider to find out whether any of these apply to you and your scheme.
You should be very wary of anybody who contacts you to tell you that they can get you access to your pension before age 55, as this is likely to be scam.
This means that if you want to retire earlier than 55, you will need to rely on other assets and income streams before you’re able to access your pensions at age 55.
If you are planning on retiring early, it’s important to build up non-pension assets during your working years, that you can draw from in your early retirement.
This could include savings, investments (such as a Stocks & Shares ISA), and rental properties.
Once you reach 55, you can draw a tax-free lump sum and if required income from your pensions.
For personal pensions, the tax-free amount (called the Pension Commencement Lump Sum) is generally 25% of the fund value at the time of crystallisation.
You don’t have to take the lump sum all at once.
Any income that’s drawn (whether regularly or lump sum withdrawals) are taxed as income in the normal way.
For final salary pensions there are usually penalties that apply if you take your pension before the scheme’s normal retirement age.
If you take your pension many years before the scheme’s normal retirement age these penalties could be significant, so you need to do your sums to make sure you’re making the right decision – we would recommend you seek independent financial advice to make sure you’re doing the right thing.
If you’re still working you may want to reconsider whether you should access your pension early.
Unless you have a specific need for the tax-free lump sum or income, it’s better to leave the pension untouched until you give up work. This will mean there are more years for the pension to grow, which could give you a bigger income when you give up work.
Things to be aware of
· Income from pensions is taxed at standard income tax rates and bands.
· The value of your investment (and any income from them) can go down as well as up and you may not get back the full amount you invested. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
· The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.
Please note: This blog is for general information only and does not constitute advice. The information in this article and all others in The Learning Hub is aimed at retail clients only.