Early Retirement
Some people may wish to retire early by choice, or have to stop
work due to ill-health or redundancy.
This is known as early retirement, and can have an influence on
both
State Pensions and
Personal Pensions. It’s important to
know how retiring early could affect how much money you have to
live on.
How does early retirement affect the state pension?
Retiring before
State Pension Age will mean that a
pensioner will not receive their State Pension instantly. They may
also get less when they reach State Pension Age than if they had
continued in employment.
To get a State Pension, one needs to work a certain number of
qualifying years during which they have paid National Insurance
Contributions. Early retirement means fewer qualifying years.
Boosting National Insurance Contributions
Taking early retirement needn’t impact on your state pension if
you boost your National Insurance contributions. There are a number
of ways in which to boost NICs. These include:
- Paying voluntary NICs (for those under 60)
- NIC credits for men over 60 aged before 5th October 1954
- Casual work to add to NIC record.
Early retirement and personal or company pensions
The details of company, personal or
stakeholder pension schemes
will outline when the pension scheme holder can retire without
penalty. Many pension schemes make provision for early retirement
on the grounds of ill-health. Your pension company should be able
to highlight how early retirement will affect your pension.
Early retirement and personal pensions
Being a member of a personal pension,
occupational pension, or
stakeholder pension will be affected by early retirement. If you
wish to retire early, it is worth bearing in mind that:
- Your pension fund will be smaller if you pay in for fewer
years
- Your pension fund will provide you with an income over a
longer period, therefore the pension will be smaller
Early retirement and final salary pension schemes
Final salary pension schemes are becoming increasingly rare,
with many companies closing their schemes to new members.
However, many UK employees have some form of final salary
scheme. This type of pension calculates retirement income based on
a small fraction of salary, multiplied by the number of years as a
member of the scheme.
Both of these will be impacted on by early retirement.
Some companies may block their employees from taking a
pension before normal retirement age. However, ill-health may have
an impact on this, and provide for an enhanced pension in the case
of ill health.
