State Pension
The State Pension is a regular payment from the government that you can qualify for when you reach State Pension age. The current State Pension age is 66 for men and women, however it will increase to 67 by 2028.
A new State Pension system came into effect on 6 April 2016, and how much you’ll receive will depend on whether you reached State Pension age before or after this date. To qualify for the new State Pension you’ll need to have paid National Insurance contributions for at least 10 years. To receive the full State Pension of £221.20 a week, or £11,502.40 a year, you’ll need to have paid National Insurance contributions for 35 years or have eligible credits.
You can check your State Pension age using a tool on the gov.uk website, and can also check your National Insurance contribution record to ensure you have enough qualifying years. As there’s no longer a default retirement age in the UK, you don’t have to take your pension when you reach State Pension age and can decide to defer it instead.
Workplace pension
Defined contribution, workplace pensions and personal pensions work in exactly the same way. These are pensions that have either been setup by you or your employer, and involve you making regular pension contributions throughout your career. Their value is based on how much you’ve paid in and how your investments have performed.
You can access this pension pot from the age of 55, however, this is expected to increase to 57 by 2028. There are numerous pension withdrawal options for accessing the savings in your workplace pension. You can claim your pension as a lump-sum or use it to invest via drawdown or to purchase an annuity. You can also choose to keep your pension where it is if you don’t want to retire at 55 or can live without the income for a few years.
If you’re a member of a defined benefit workplace pension scheme the rules are slightly different as the value of your pension is based on how long you’ve worked for the company and your salary. At 55 you can access up to 25% of either pension tax-free, however you might have to wait until a pre-agreed age to access the rest of the benefits in your defined benefit pension.
Early retirement
You can stop working at any age in the UK and can officially retire whenever you choose. Before you retire, it’s important to make sure you won’t have a retirement savings shortfall in later life and will have enough money to live on in retirement. No matter when you decide to retire, you won’t be able to claim your workplace or personal pensions until your 55th birthday.
The State Pension age also remains the same and you have to reach the appropriate age before you can access your State Pension entitlement. If you plan on drawing the State Pension you’ll need to make sure you’ve paid enough National Insurance contributions in the years that you were working to ensure you receive as much income as possible in retirement.
Using a pension calculator to help with your retirement planning will allow you to determine if you can afford to retire early or if you should keep contributing to your pension for a little longer.
Early pension release
It’s not possible to get an early pension before the age of 55 unless you’re unwell or meet specific conditions. To deter people from taking their pension early, HMRC charges a substantial amount of tax on each early withdrawal.
Early pension release is a common pension scam and you should be aware of anyone who claims they can help you do this. You could risk losing all of your pension to scammers and having to pay HMRC fines on top of this.
If you’re concerned about an early pension release scam you should report it to the Financial Conduct Authority by calling their consumer helpline on 0800 111 6768 or by visiting FCA.org.
Claiming your pension with PensionBee
Drawdown is simple with PensionBee. Our service combines and transfers all of your old pensions into one easy to manage online pension plan. Funds are managed by some of the biggest global investment firms such as BlackRock, State Street Global Advisors, HSBC and Legal & General.
You’ll be able to track how your funds are performing through an online dashboard and once you reach 55 you can access your money in just a few simple steps. As long as there are no issues verifying your bank details, it will take around 10 working days for you to receive your money.
Risk warning
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.
Last edited: 06-04-2024
