What if I take my pension early?

It’s actually possible to start benefiting from your pension from the age of 55 – even earlier if you can no longer work due to poor health. Tapping into your pensions savings sooner obviously means that they have to stretch even further to fund a potentially longer retirement.

The pension options are available to everyone over the age of 55. But that doesn’t necessarily mean that by drawing on your pension savings you have fully retired. You may want to continue working and contributing to your retirement savings.

These payments can be regular and/or occasional, and will continue to benefit from tax relief. For example, you may choose to make regular payments into a pension plan and/or add the odd lump sum from a bonus or inheritance, during any tax year. This change does not affect the total amount you can hold in your pension savings over your lifetime, known as the ‘Lifetime Allowance’. Currently, the maximum amount is £1.03 million (2018/19).

Some things you should check

  1. Loss of guarantees - Does your pension offer any type of guarantee, such as income or fund value, which is based on your current selected retirement date? What happens to this guarantee if you access your retirement before your specified retirement date?

  2. Charges - Are there any special conditions relating to your pension policy? For example, are there restrictions or charges that may come into play for any of the pension options, including transferring money to another provider?

  3. Tax - There could be tax implications should you decide to retire before your selected retirement date.

  4. Inflation - Rises in everyday costs due to inflation over a longer period could mean your pensions savings will be of less value in real terms in later life.

Retiring early is such an important decision that it’s worth exploring all the options so you know what income to expect from your pension savings. Even if you’re only mildly interested in an annuity, it’s worth getting a quote for one. Your postcode, health and lifestyle are all taken into account by providers to calculate your life expectancy and how much an annuity will pay you.

Dipping into pension savings from age 55 could reduce your Annual Allowance This is the maximum amount you can save towards your pension in any tax year across all pension plans. The limit for the tax year (2017/18) is £40,000 or 100% of your taxable salary, whichever is lower. This applies to most people. from £40,000 to £4,000 (2017/18). The lower allowance is known as the ‘Money Purchase Annual Allowance’ (MPAA). We’ll let you know in advance if this affects you – so too will other pension providers. For further details visit https://www. moneyadviceservice.org.uk/en/articles/tax-relief-on-pension-contributions#themoney-purchase-annual-allowance-mpaa

We’ll let you know in advance if this affects you - so too will other pension providers. For further details visit the Money Advice website.


Tax Warning

Tax treatment will depend on your individual circumstances and may be subject to change in the future. 

Need more help?

If you need to speak to someone to get more help.
Contact Us