You’re either reading this because retirement is around the corner – or because you’ve got years of work ahead and you want to plan for the future.
It's never too early or late to start planning for your retirement, as you need to make sure you can live comfortably when you’ve finally left work.
The law on retirement and pensions is going through a period of change at the moment, so we’ve summarized a few key points to bring you up to speed on when you can take it and how to go about organizing it...
When can I retire?
For those of you who aren’t in any hurry to retire, take heart that the default retirement age has been phased out. This means if you didn’t receive notice from your employer before 6 April 2011, you can’t be made to retire using the default retirement age of 65 - unless they can justify it.
However, there are rules about the age when you can claim a state pension:
- For men born before 6 December 1953, state pension age is 65
- For women born after 5 April 1950 but before 6 December 1953, the state pension age is between 60 and 65
Because we’re now all living longer now, the Government is adjusting the rules to accommodate for an increased and older population. Under the Pensions Act 2011, the state pension age for both men and women will start to increase from December 2018, to reach 66 in October 2020. This applies to:
- Women born on or after 6 April 1953
- Men born on or after 6 December 1953
Eventually, the state pension age is set to increase to 67 between 2034 and 2036 and 68 between 2044 and 2046 (which affects anyone born after 5 April 1977).
Confused by all the facts and figures? You can pinpoint your personal retirement age using the DirectGov State Pension age calculator.
Be aware: The state pension age is likely to increase to 67 between 2026 and 2028. It’s not yet law, but watch this space.
Want to keep working for as long as possible? No worries, you can still work after state pension age and either claim your state pension while still working, or accrue it until you give up work.
Am I entitled to a pension?
You are entitled to a state pension if you have paid or been credited with enough National Insurance contributions (NICs) through work or voluntary payments:
- Men born before 6 April 1945 need 44 qualifying years
- Women born before 6 April 1950 need 39 qualifying years
- Men born on or after 6 April 1945 need 30 qualifying years
- Women born on or after 6 April 1950 need 30 qualifying years
Early retirement and other reasons for retirement
There are several reasons why you might opt for an early retirement. Some of the most common reasons include:
- Voluntary redundancy close to retirement age
- Amassing a nice fat nest egg
When taking early retirement through choice or voluntary redundancy, it’s crucial you’ve got enough money to live comfortably. The earliest you can draw on a company or personal pension, for instance, is usually 55 – but this might vary. So, check:
- What your personal or company pension is worth, and how and when you can take it
- Entitlement to state pension and pension credit
- Any savings and investments
If you're retiring because of ill-health you may be able to take your benefits early. If your life expectancy is less than a year, then you can usually take up to 100% of your pension fund as a tax-free lump sum. If you're married or have a civil partner, up to 50% of the pension fund may be held back to provide for a survivor's pension.
The downsides of early retirement
You still can’t claim a state pension until you reach the correct age – and you may find you get less than if you'd carried on working. This is because you won’t have built up enough National Insurance contributions (NIC) or because your pension is being paid over a longer period than anticipated.
However, you can boost your NIC record by:
- Paying voluntary contributions
- Taking on part-time or casual work to augment them
- You will be credited if you have claimed incapacity benefit
If you're a member of a personal pension, final salary scheme, stakeholder pension or occupational money purchase scheme, bear in mind that you've had fewer working years to contribute, so your pension fund will be smaller.
How you retire
Just to be clear, if your employer didn’t tell you before 6 April 2011 they want you to retire, they now can’t make you do so using a default retirement age. Remember, the new age discrimination laws mean you can challenge your employer at a tribunal if you feel they dismissed you unfairly.
Assuming you want to retire, you’ll need to talk to your employer about your options, so try and schedule a meeting with your boss face-to-face. Check your contract for your minimum notice time – this varies, but is usually around six months' or one month's notice.
Follow your meeting up with a formal letter, copied to HR and Payroll, as they'll need to make sure you're given all relevant sick days or other compensation. Include the exact date of your retirement, a forwarding address - and always leave on a high note by adding good wishes to your colleagues, even if you’ve secretly hated them all these years.
What happens when you retire?
So you’ve told the boss, waved your fond farewells and now you’re ready for retirement. Now what?
Four months before you reach state pension age, the Pension Service will write to you about claiming your state pension. If you don’t hear from them, you need to contact the Pension Service yourself on 0800 731 7898.
You’ll need to notify your tax office when you retire or reach state pension age so they can make sure you receive the right tax-free allowances, pay the right amount of tax and stop paying NIC.
You’ll then be sent an Age-related Personal Allowance form (P161) to fill in and return to your tax office. If you don't, you could end up paying too much tax on your pension income, savings and interest. If you don’t receive one, contact your tax office.
Depending on your circumstances, you may be entitled to other benefits when you retire, such as winter fuel benefit, housing benefit and council tax reductions.
Last but not least
If you lose your pension details, don’t worry. Simply contact the Pension Tracing Service on 0845 6002 537.
Want to know how much pension you'll receive? Check out the pension calculator.