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Retirement Choices

Early retirement

It may be possible to take your benefits early from your pension scheme. How this works will depend on whether your pension is a defined contribution scheme or a defined benefit.

Depending on your circumstances, you may find that you need to open your pension pot or start taking you pension benefits earlier. In some cases, you can do this, but it depends on whether your scheme is a defined contribution scheme or a defined benefit scheme.

Taking your benefits early from a defined contribution schemes

You can choose to open your pension pot and use it to give yourself an income at any time from age 55. You can do this even though the normal age under your scheme for taking your benefits is likely to be later.

There are schemes which are setup for people in special industries (for example: sports professionals) or where there is a protected retirement age, in these schemes you are permitted to retire before age 55, you should contact your scheme provider/administrator if you believe this applies to you.

However, there are some disadvantages in opening your pension pot early:

  • The younger you are when you use it, the smaller your pension pot will be. This is because you have had less time to pay into it and there has been less time for the pot to grow.
  • Buying an income will cost you more because that income is likely to be paid for a longer period of time. This means your income is likely to be smaller than if you had waited to take it.  
  • If you are invested in with-profit funds your fund may reduce because of a market value reduction or market value adjustment. If you are invested in a personal pension plan, there may also be early exit charges particularly if the plan was set up in the 1990s. These exit charges may be the reclaiming of the initial set up costs that are collected during the duration of the policy so it is not necessarily a penalty for taking it early as you would pay the charges any way.
  • If you've selected the lifestyling investment option, the fund may be invested in equity assets in the run up to you drawing the benefits early, which could mean that you could suffer a fall in the investments.
  • If you're thinking about opening your pension pot early, you might want to consider paying more into your pot if you can. You should also let your provider know.

 

Taking your benefits early from a defined benefit scheme

You may be able to take your benefits early, from age 55. You may be able do this even though the normal age under your scheme for taking your benefits is likely to be later. It will depend on the rules of your scheme.

Some defined benefit schemes have protected retirement ages which permit you to retire before age 55. If you believe this is the case you should contact your pension administrator/provider.

You may find that your scheme reduces your benefits if you take them early. This is because the pension is likely to be paid to you for longer.

To find out if you can retire early, ask your scheme about the rules, and who you should apply to for early retirement. You should also ask for details of how much reduction, if any, will be made.

 

Frequently asked...

Where can I find out more?

If you need more information, please contact us. A pension specialist from our team will be happy to help with whatever pensions-related question you have. Our help is always free.

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