Can I retire early?
There is no longer a hard and fast age at which you have to retire. It’s basically up to you and you can retire early if that’s your chosen option.
However, you’ll need to be in a secure financial position to fund your retirement years before you give up work.
The more pertinent questions, therefore, are when can I access my pension savings and how much will I need in total to live comfortably in retirement?
Our guide on how much will you need to retire? covers the second question. Here we look at the current rules for drawing on your retirement funds.
Do I have to retire?
The answer is ‘no’, as long as your employer is happy for you to work on. There is no longer a law that states you have to retire at a certain age.
In the past, companies applied a default retirement age, which meant employers compulsorily retired workers when they reached the age of 65.
This was phased out in 2011 to reflect the fact that people were living for longer.
It is still possible for individual employers to operate a compulsory retirement age, provided that they can objectively justify it (eg air traffic controllers and police officers).
However, workers can no longer be forced to retire on the grounds of age alone.
When can I claim the state pension?
The rising state pension age means that people are getting this regular government-provided income at a later age.
Since December 2018, men and women have qualified for the state pension at the same age (65). The state pension age then increases to 66 in October 2020 and to 67 between 2026 and 2028.
In July 2017, the government announced its intention to increase the state pension age from 67 to 68 between 2037 and 2039, which is seven years earlier than previously planned.
This means that those born between April 1970 and April 1978 can expect their state pension age to be 68 and not 67, but this hasn’t yet been approved by parliament, so the full amended timetable isn’t available.
The state pension can cover a significant part of your retirement expenditure. A couple claiming the full basic state pension will receive a minimum of around £14,000 per year under the old system and approximately £18,200 with the new state pension (if both receive the full level of new state pension).
Which? research has found that a couple will need around £17,000 per year to cover ‘essential’ outgoings, such as food and drink, housing payments, transport, utility bills, insurance, household goods, clothes, shoes and health products.
Check your state pension age using Which?'s calculator.
Can I get my pension at age 55?
If you’re in a defined contribution pension, you can generally access your money at 55. At this point, you’ll also be able to withdraw up to 25% of your pension tax-free.
However, some schemes will have have a 'normal' or 'selected' retirement age and if you access your pension plan before this date, you may incur an early exit penalty.
The one exception is if you’re seriously ill and need to access your money early. This should be arranged with your pension provider who will be able to tell you how this works and whether you are eligible.
When is the minimum pension age increasing?
Getting your hands on pension savings at 55 may be relatively shorted-lived.
The government intends to increase the minimum age at which you can access personal pensions to 57 in 2028, so that it will remain 10 years before you are eligible for the state pension.
What effect will early retirement have on my pension?
If you give up working early, your state pension could be lower. This is because the amount you get is based on the number of years' worth of National Insurance contributions you have.
You need 10 years' worth of contributions to get any state pension at all, and 35 years' to get the full state pension, which is currently £175.20 a week.
If you retire early without the maximum number of years, you could get a lower state pension amount when you reach state pension age.
You can find out how many years you currently have by checking your state pension forecast.
Private or workplace pension
The immediate risk in cashing in a private pension early is that you run out of money in retirement. You need to plan your retirement carefully to make sure that you have enough to live on in retirement.
But you could also severely limit how much you can contribute to a pension in the future by accessing your savings early.
If you withdraw cash beyond your 25% tax-free lump sum, you could trigger something called the 'money purchase annual allowance'. This will reduce the amount you can pay into a pension each year from £40,000 to just £4,000.
This could be a serious issue if you want to get money out of, say, an older, smaller pension but carry on working and saving for the future.
Find out more this in our guide to how the pensions annual allowance works.
Can I access my final salary pension early?
It’s a little more complicated if you’ve paid into a final salary pension, also known as a ‘defined benefit’, scheme.
Under a final salary pension, you’ll receive a portion of your salary based on the number of years you paid into the scheme. When you can access your money is different for final salary pensions and will depend on the individual scheme rules.
Final salary schemes will usually have a ‘normal retirement age’ (the age at which you can start taking your pension), which is often 60 or 65.
The normal retirement age for public sector pensions will vary depending on the scheme you’re enrolled in, and when you joined it.
As an example, the NHS pension scheme is divided into different groups, with most members falling under the ‘2015 section’.
For these members, the normal retirement age will be the same as their state pension age. Other members remain under the older 1995 or 2008 sections; their normal retirement ages will be 60 and 65, respectively.
Under the Teachers’ Pension Scheme, members in the final salary scheme will generally be able to access their benefits at 60 if they joined before 1 January 2007, or 65 if they joined after.
You’ll need to contact your pension provider to find out exactly when you can start taking your defined benefit pension.
Transferring out of a final salary pension scheme
If you’d like to access your final salary pension earlier, you may be tempted to transfer to a ‘defined contribution’ pension.
A transfer will involve your employer giving you a cash lump sum in exchange for you waiving your right to a pension income for life.
This is likely to give you more flexibility, but there are risks involved, and you should think very carefully about the benefits you’re likely to lose.
Get expert help with your pension
The Which? Money Helpline offers independent one-to-one guidance on a range of topics including the state pension.
If you're not a Which? member, and you'd like to get unlimited access to our Money Helpline experts, you can try Which? Money for one month for £1.