There are also some circumstances when you may be able to take money from your pension even earlier than 55, such as if you’re in poor health or in a profession where your normal retirement age is earlier than normal, for example if you are a professional athlete. You may also have a protected pension age lower than 55 under the rules of the Scheme.
If you’re a member of a workplace pension scheme, you generally require the consent of the employer or ex-employer to take benefits early. In some instances, you may also need the consent of the pension scheme trustees.
If you have a private pension, you don’t need the consent of an employer or the pension provider to take benefits early, if the terms and conditions of your contract allow you to do this.
If you are a member of a defined benefits scheme, your pension may be reduced to take account of the fact that you are being paid early and for a longer period of time. If your membership includes an element relating to contracting out of the state scheme between 6 April 1978 and 5 April 1997 then there will be a certain minimum amount that must be payable by the scheme which is known as a Guaranteed Minimum Pension (GMP). If your pension is not going to be at least equal to your expected GMP when it becomes payable, early retirement may not be possible.
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.
Ill health retirement
While it is not possible to receive your state pension before your state pension age, regardless of your state of health, it may be possible to receive some help with your cost of living.
If you are unable to work due to ill health you may be entitled to some state benefits such as Statutory Sick Pay (SSP), Employment and Support Allowance (ESA) or Universal Credit (UC).
If you have a private or workplace pension, you may be able to take benefits from your scheme at any age due to ill health.
Your scheme will have its own definition of what ill-health (sickness) means, but usually you will be considered for an ill-health pension if you’re unable to carry out your normal job because you’re physically or mentally ill.
If you’re in serious ill-health (you have less than a year to live), you may be able to take the whole of your pension pot as a lump sum. A serious ill-health lump sum paid before you reach the age of 75 will be paid tax-free provided you have available lifetime allowance. If you’re over the age of 75, the lump sum will be taxed at your marginal rate of income tax.
If you have a defined contribution pension scheme, you have a number of different choices when you decide to start drawing retirement benefits. One of these is to buy an annuity to provide you with a guaranteed income, either for the rest of your life or for a fixed number of years.
You don’t have to buy an annuity to provide retirement benefits, but an annuity can help to provide certainty of income in the future. You can also build in a continuing income to a surviving dependant should you die.
You can also decide to use part of your pension pot to purchase an annuity and the rest to take as a tax-free cash lump sum (pension commencement lump sum (PCLS)).