Under current UK pension rules, the earliest you can access your private or workplace pension is set to age 55. This is known as the minimum pension age and has been effective since 6th April 2010.
Prior to this date it could have been aged 50, an individual could still access an old pension at age 50. If it had what we call “a protected age” but this option or availability is limited to very few schemes this days.
Be aware !
This age will rise to age 57, with effect from 6th April 2027. As it is being brought in line with the state pension age (SPA). So the idea is that it should always be 10 years below the SPA. This rule is overriding and could affect people born between 6th April 1971 and 5th April 1973. So check with your current provider, if you don’t access a pension at age 55, your minimum age could suddenly be increased to age 57.
Does it depend on what type of scheme I have ?
Most individuals will belong to a Defined Contribution scheme (DC) this could be a private or workplace pension. In that you and your employer will invest monthly contributions and it will buy shares and funds. Your provider will add tax-relief on your behalf as an incentive. Which will create a portfolio value, which will go up and down on a daily basis. It could be set up as a default age so it could be at age 60, or age 65. But thanks to the introduction of Pensions Freedom in 2015, you can access your DC pot at any time after age 55.
If you have a Defined Benefit (DB) or Career Average (CARE) your scheme trustees will set the normal retirement date (NRD) which may be age 60 for older schemes. It is normally aged 65 or state pension age for recent schemes. With these schemes the benefits are guaranteed by employer, based on length of service, salary and accrual rate.
You can access a pension before normal retirement date but the scheme trustees may apply an early reduction factor. So the amount of guaranteed pension payable will be reduced as it will be getting paid out, over a longer time frame.
A simple example: NHS pension schemes:
1995 scheme, is a DB pension which has NRD of age 60, but can be accessed at age 55 on reduced basis.
2008 scheme, is a DB pension which has a NRD of age 65, again can be accessed earlier but again on a reduced basis.
2015 scheme, is a CARE pension which has a NRD linked to state pension age so currently at 66 or 67 in future years.
(and we wonder why people get confused by pensions, as the rules are forever being changed)
So can I access my pension before age 55 !
You can under special circumstances:
- You have a protected age
- You retire on ill-health or serious health rules
- You have inherited a pension pot
What about Scammers !
If you act the pot under any other conditions, it may well be a SCAM and you could be hit with a very large tax bill. So be aware if anybody contacts you, stating that you can access a pot earlier than age 55. You could lose your pot completely or hit with a tax charge of 55%.
It has been illegal for cold callers to call people since 2019 about their pensions, and you can report a scammer to https://www.actionfraud.police.uk, or the https://ico.org.uk/ (information Commissioner’s office)
Somebody may offer you a free review, investment opportunity, legal loophole, incentive to move your pot, or if may sound too good to be true.
So if 3rd party does contact you about your pensions, ignore them and report them. Nobody should care more about your pots than you, but for some people it’s inertia, or complicated, or the idea of administrating numerous pots may appear daunting and overwhelming.
Can I lose benefits if I access my pot early !
Most DC schemes through the introduction of Auto Enrolment (AE) are relatively simple, in that they have no special features or benefits attached to them and they are worth what they are worth on a daily basis.
But older schemes from the 1980’s or 1990’s, which were set up through a financial adviser or by contracting out of SERPS may have special feature, benefits or legacy features.
In those days, you only option on accessing was to buy an annuity, so a provider may offer a Guaranteed Annuity Rate (GAR) so a better level of income if you buy a product with them at the point of retirement. If you do access before selected retirement date you may lose the GAR on offer from your current provider.
Or you may be in a with profits policy that will pay an annual bonus to the member each year, then on maturity it will add a final or terminal bonus. But if you access a pot before the normal selected retirement date, you may lose out of future annual bonuses. Or a provider may apply a market value reduction (MVR), if you access early it is not detrimental to other policyholders
If you did contract out in the past, you may have something called a Guaranteed Minimum Pension (GMP). So this is a set amount the scheme will pay you at a set age, so you access your pot before that date it may well be reduced. At present this date is set at 65 for men and 60 for women, and this date is regardless of the pension schemes normal retirement date.
Can I access some funds and leave the rest invested !
Yes, you can thanks to the introduction of Pensions Freedom, you can access some or all of your tax free cash at age 55. But you don’t have to access the remaining funds invested until a later date.
This is known as flexible accessed drawdown (FAD), so a simple example you could access a tax-free element at age 55 to clear your mortgage, home improvements, new car, holiday or getting the children through University. But you don’t access the rest of the funds until you are in your 60’s, when you may need the funds to pay for your actual retirement.
Check with your provider as you may create 2 policies, 1 for the sum accessed what we call crystallised. With future contributions being invested into a new pot which we call uncrystallised (not accessed). This is normally applicable if you access your fund with your current employer or it’s a private pension and you are still contributing. So check the conditions applicable by your current provider. If you do decide to access your pension scheme and still want to contribute.
Be aware: If you access the tax-free amount only it’s not a problem. But if you access some flexible income afterwards (even if it’s £ 1) you trigger something called the MPAA (money purchase annual allowance) whereby you can still contribute to the scheme but you annual contributions are the restricted to £ 10,000 per tax year. Covering both you and your employer’s contributions. This figure may appear out of the reach to most people, but it may be a problem if you are on high salary, or your scheme has high contribution % levels.
Accessing your pension in later life !
Give some consideration or serious thought about what age you may access your pot of money and in what format. If you access your pot in your early 50’s it may have to last many years. As people now are living on average to their mid 80’s, so it could last you 30 years. If you are going to access in your 60’s or 70’s it may go further and provider a better level of income. As it will be payable over a shorter timeframe.
This is immaterial whether you buy an annuity (so a guaranteed income) for the rest of your life. Or you access via drawdown or a number of lump sums (UFPLS). So use the tools and calculators provided by your provider or comparison sites if shopping around. But remember if you do it on your terms and access more in the earlier years than the later years, will you have enough left to fund the later years of your retirement. When things will cost a lot more due the power of inflation.
So what are my options when accessing my DC pension !
- Leave the rest of the money invested
- buy an annuity, so a guaranteed income for lifetime or fixed number of years.
- Access via FAD, so you can do flexibly on your terms until the pot is empty.
- Access via UFPLS, so a number of lump sums, again until he pot is empty.
Much greater information can by found on this blog, https://moneyminted.co.uk, or the free an impartial website being http://www.moneyhelper.org.uk. Or you could book a free Pension Wise appointment via the moneyhelper website or being signposted by your pension provider, which lasts about 1 hour.
Finally – what about my state pension !
You state pension is considered separately and it based upon your national insurance throughout your working life. If you have paid paid 10 years contributions, you will get some entitlement. If you have paid the full amount of 35 years. You should receive the current amount of £ 230.25 per week from age 66, although this is being increased to age 67 by March 2028.
You can check your check pension forecast amount at http://www.gov.uk/check-state-pension, or by calling 0800 731 0175, if within 6 months of state pension age. Most people will attain figures by going through their government gateway account.
Remember !
If you found this blog post useful and informative, please check out my other posts on pensions, savings and investing. Along with investment books that I recommend. So you too can improve your financial and investing knowledge to reach your goals in future.
It’s not a get rich quick journey, but you will get there in the end if you create an action plan and think long term.
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