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.
If you’ve got a personal or stakeholder pension the earliest you can usually retire is age 55. If you want to change your chosen retirement date you’ll need to check with your pension provider. They’ll be able to tell you what you need to do and whether there are any special circumstances you need to think about.
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.