This article was last updated on 20/07/2023
Timing is everything, especially with pensions. But with so many retirement choices and other considerations, figuring the best time to begin withdrawing your pension can be tricky.
First things first, when can I access my pension?
You can usually access a personal or workplace pension from your retirement age. This is currently from the age of 55, or if you’re retiring from 2028 onwards then 57 or older. Having access doesn’t mean you automatically have to begin taking your pension though.
You can make your own choice about when you want to retire and there are several options to choose from; early retirement from 55 years old, waiting until your 60s when you’re nearer the State Pension age, or even holding out until 70 years old to enjoy potential deferment growth.
How does the timing of retirement affect my pension?
You can claim a smaller pension sooner, or defer to enjoy a larger pension later in life - as delaying can prove profitable to your overall pension balance.
Let’s look at the example of Emma, who is 50 years old and isn’t sure when to retire. Having consolidated her old workplace pensions, she has a pot of £250,000 for her retirement. Here are some scenarios Emma could choose from, based on estimations from our pension calculator that assume she:
- Achieves investment growth of 5% per year
- Experiences inflation of 2.5% per year
- Pays an annual fee of 0.70%
- Lives until 100 years old
- She only has defined contribution pensions
Aside from defined contribution pensions, there are other retirement products available: a pension annuity, defined benefit pension (if enrolled), or even property. If you’re unsure, you can always ask a Financial Adviser to discuss your specific options. The following scenarios are for illustration purposes.
Early retirement at 55
During the next five years she receives £250 in workplace contributions and makes £100 in personal contributions each month. Having saved almost £300,000 in her pension, Emma decides to retire early at 55 years old. This would give her the following income:
- Personal pension (from 55 years old): £9,000
- State Pension (from 66 years old): £10,600.20
- Combined income (from 66 years old): £19,600.20
Retiring at 60
By continuing to work until 60 years old, Emma increases her pension pot by over £50,000 in those further five years - as she continues to receive employer contributions and make personal payments into her pension. Now she retires with a personal pension of £345,000, with five years of deferring her retirement income increasing her personal pension by £2,500 per year.
- Personal pension (from 60 years old): £11,500
- State Pension (from 66 years old): £10,600.20
- Combined income (from 66 years old): £22,100.20
Retiring at 65
Beginning her retirement at 65 years old she has a sizeable £400,000 in pension savings, as delaying her retirement income by a decade (£90,000) would bump her pension up by £5,800 per year. What’s more, as Emma is only relying on her personal pension for one year before she starts receiving her State Pension, she would receive more consistency in her income.
- Personal pension (from 65 years old): £14,800
- State Pension (from 66 years old): £10,600.20
- Combined income (from 66 years old): £25,400.20
Retiring at 70
Accessing her pension later in life, Emma benefits from compound growth of her personal pension and deferment growth of her State Pension. Postponing taking her pension by fifteen years would more than double her annual pension income - a growth of £10,000 per year - and Emma would receive a consistent amount made up of her personal pension and State Pension:
- Personal pension (from 70 years old): £19,000
- State Pension (from 70 years old): £13,281.84
- Combined income (from 70 years old): £32,281.84
Planning is key to reaching retirement goals
As we can see from the example of Emma, the timing of taking your pension can have a huge impact.
When you imagine your retirement you may have a specific age or lifestyle in mind. Knowing how much you have saved in your pension is key to determining when you might be able to afford the lifestyle you have in mind. It’ll show you how far you are from your savings goals, and how much you might need to contribute in order to achieve them.
If you’ve got several old pension pots, you might want to consider taking steps to consolidate your pensions. By consolidating your pensions into one accessible plan, you’ve got visibility of both your pension balance but also how your investments are performing too.
As well as knowing your pension balance, you’ll want to consider boosting it. By saving sooner you may benefit from compound interest. Contributing into a pension, and having compound interest on top, may give your pension a boost.
In addition, when you make personal contributions most basic rate taxpayers get tax top ups of 25%.
This means that for every £100 they pay into their pensions HMRC effectively adds another £25. Higher rate taxpayers can claim a further 20% through their tax returns, and top rate taxpayers can claim 25%.
Bear in mind that you can also boost your savings by deferring your State Pension
To qualify for the full State Pension you’ll need a National Insurance record with at least 35 years of contributions. Once you reach State Pension age - currently set to 66, but rising to 67 - you’ll be able to claim or defer your State Pension.
Your State Pension will automatically defer if you don’t claim it.
The amount you’ll receive increases by almost 1% for every 9 weeks you defer taking your State Pension. If you delayed State Pension payments by one year, for example, you’d receive almost a 5.8% boost to your pension. Here’s an example of how deferring could impact your State Pension:
| Full State Pension | Estimated annual income | Estimated weekly income |
|---|---|---|
| Withdraw immediately (at 66) | £10,600 | £203.85 |
| Defer by one year (until 67) | £11,214.84 | £215.67 |
| Defer by two years (until 68) | £11,865.88 | £228.19 |
Source: Government, Delay (defer) your State Pension
You might find that delaying taking your pension can be advantageous, as long as you don’t need the money straight away.
Timing your retirement (recap)
Making the decision to retire is impacted by your desired retirement income. There are no guarantees with your investments, so assess which savings products provide the growth you need without exposing yourself to excessive risk.
Here’s a recap of some things you may wish to consider:
- Combine all your old pensions into one accessible plan
- Make personal top-ups and get government top-ups too
- Defer and increase your State Pension
- Consider your retirement goals with our Pension Calculator
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.
