Taking early retirement is a viable option for many people nowadays. So, how does retiring early affect a pension and the welfare benefits you get?
STATE PENSION: Being able to retire early appeals to the majority of seniors.
But, the fact is you cannot get the State Pension until you reach your State Pension age.
That means if you retire early, before you reach the pension age, you still need to wait to claim the State Pension.
The amount of pension you will get varies. It depends most on your National Insurance record at the time of reaching State Pension age.
But, those who reach State Pension age on or after the 6th of April 2016 will claim the new State Pension.
As a rule, you cannot take money from your pension pot until you reach 55 years old. Even so, the scheme rules of your pension will determine how much you get.
There are several exceptions to this general rule. In some cases, you can take money out before 55 if either:
Note: Beware of companies with offers of help to get money out of your pension before reaching 55. The system they use can result in an unauthorised payment. You will pay up to 55% tax on unauthorised payments.
There is another consideration about taking an early pension pot. The fund you build up is likely to be smaller by taking early retirement. In simple terms, this is because the pension pot has less time to increase its value.
Taking a pension early due to a health condition means you may qualify for higher payments. It is best to check with the pension provider if this applies to your situation.
In some cases, you can also take the whole pension pot as a lump sum and tax-free. This is only possible if all the following apply:
Note: Those who are over 75 years old will pay Income Tax on the lump sum. As always, your pension provider is the main point of contact. Some pension funds will keep at least 50% of the pension pot for a spouse or a civil partner.
Taking an early retirement and pension can affect some income-related welfare benefits. The pension payments may influence the amount of money received from:
There are entitlements to other welfare benefits if you retire early due to ill health. You can use the government benefits calculator to check whether you qualify.
There is a lot of help on how taking a personal or workplace pension early affects benefits. One of the most informative is the Pension Wise website. But, you can also get expert help and advice from Citizens Advice and the Money Advice Service.
How Early Retirement affects Pensions and Benefits in the United Kingdom