UK Pension Retirement options

Whether you're planning to retire fully, or gradually, you now have more choice and flexibility in how you provide you and your family with an income in retirement.
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When can I take my money
Whether you have a defined benefit or defined contribution pension scheme, you can usually start taking money from the age of 55. You could use this to help top up your salary if you are still working, to enable you to work fewer hours or to retire early. You may also be able to release a cash sum from your pension too.

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.

Combining pension pots
If you’ve had more than one job during your working life, it’s likely that you may have paid into more than one defined contribution pension scheme. If you’ve got several different pots, it may be worth combining them as you near the date when you want start to drawing retirement may be easier, and you may get a better deal.

Early retirement
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.

Late retirement
Most workplace pension schemes set an age at which most people are expected to take their benefits, referred to as normal retirement age. This is usually 65. If you have a personal pension, you choose the date when you think you will want to open your pot. This is usually referred to as your selected retirement date.

You don’t have to take your benefits when you reach the retirement age under the scheme. You can decide not to have the benefits. This is generally known as taking late retirement.

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.

Flexible retirement
If you’re still working, you are able to take the benefits from your workplace pension or open your pension pot, to give yourself an additional income. This means that you don’t have to retire or stop working before taking your pension benefits.

This may be a useful option if you’ve decided to reduce your working hours and therefore, need some extra income. Please be aware that pensions are taxed as earned income and as such, is in addition to any other income that you are receiving and you should consider your tax situation before proceeding.

The rules on drawing benefits from your workplace pension scheme or provider vary and it’s not an automatic right to be able to do this.

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)).