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.
Personal and Workplace Pension Pots
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:
- Your reason for retiring early is because of ill health.
- The scheme you joined before 6th of April 2006 allowed you to take your pension before 55. You should contact your pension provider for further information on this one.
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.
Early Pension due to Ill Health
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.
Early Pension due to Life Expectancy
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:
- A serious illness means you do not expect to live for longer than one year.
- You are below 75 years old.
- You do not have more than the lifetime allowance in pension savings (currently £1 million).
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.
Early Retirement and Benefits
Taking an early retirement and pension can affect some income-related welfare benefits. The pension payments may influence the amount of money received from:
- Housing Benefit
- Income Support
- Income-based Jobseeker’s Allowance
- Income-related Employment and Support Allowance
- Pension Credit
- Universal Credit
Benefits after Retiring Early due to Ill Health
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.
Expert Help and Advice on Retiring Early
There is a lot of help on how taking a personal or workplace pension early affects benefits. The most informative may be the Pension Wise website. But, you can also get expert help and free advice from Citizens Advice and the Money Advice Service.