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If you retire early, or stop work due to redundancy, ill-health or other reasons, your State Pension and other pensions you're entitled to may be affected. You need to know all your pension options to make sure you'll have enough to live on in retirement.
Although you can retire at any age, you can only claim your State Pension when you reach State Pension age. State Pension age is 65 if you're a man and 60 if you’re a woman born on or before 5 April 1950. The State Pension age for women born on or after 6 April 1950 will increase from 60 to 65 between 2010 and 2020. It will increase for both men and women from age 65 to 68 between 2024 and 2046.
Currently the earliest you can receive a company or personal pension is 50 - but this depends on your pension scheme rules. From 2010 this rises to 55.
If you are suffering from serious ill-health that results in a life expectancy of less than a year, you can retire at any age and take up to 100 per cent of your pension fund as a tax-free lump sum. However, if you are married or have a civil partner, 50 per cent of the pension fund must be retained by the scheme to provide for a survivor's pension.
If you retire before State Pension age you won't receive a State Pension straight away and you may receive less when you reach State Pension age than if you'd carried on working. This is because you get a basic State Pension by building up enough 'qualifying years'. A qualifying year is a tax year in which you have sufficient earnings on which you have paid, are treated as having paid or have been credited with, National Insurance contributions (NICs). The earlier you retire the fewer qualifying years you will have.
Currently there are a number of ways in which you can boost your NIC record:
Your local tax office can advise you about NICs.
You'll need to check your options for early retirement with your company, personal or stakeholder pension scheme – the rules vary on whether and when you can retire. For example, many schemes allow for early retirement on grounds of ill-health when you become incapable of carrying on your occupation because of physical or mental impairment.
If you're a member of a personal pension, stakeholder pension or occupational (company) money purchase scheme, the main points to remember are:
If you started paying into your pension at age 35 and with a life expectancy of 85 then:
However, if you are retiring early on health grounds and your illness is likely to have an effect on your life expectancy, some providers are prepared to boost your pension to take account of your illness.
With these schemes the pension you get when you retire is usually based on a fraction of your salary multiplied by the number of years you were a member of the scheme. So if you are considering early retirement you will probably receive a smaller pension.
If you started paying into your pension at 35 and the pension is based on 1/80 of your final salary, then:
These are complicated points and you may benefit from getting independent advice.
If your pension won't be enough to cover you in retirement, some options you could think about are:
In this situation it's important to get advice early on from an authorised financial adviser.
