Will Early Retirement Affect your Pension Pot?

By May 18, 2017Manchester

Depending on the rules of your pension scheme it may be possible to take your benefits from your pension early. How this will affect your pension pot will depend on whether your pension is a defined contribution scheme or a defined benefit scheme.

One of the main ways that your pension may be affected is that your benefits could be reduced if taken early as it is likely your pension will be paid to you for a longer period of time and contributions will stop if you are no longer working.

While it may be necessary for you to retire early due to a change in your circumstances such as ill health, it is imperative you seek independent financial advice before making any changes to your pension plan to be sure you understand how it will affect your pension and your retirement income. A financial adviser will be able to work with you to ensure you are taking the best course of action.

If you are looking for independent pension advice in Manchester, we can help you find the right pension adviser to help you with all aspects of pension planning and reviewing to ensure you have the most effective and efficient strategies in place.

Early Retirement and Defined Contribution Pension Schemes

If you are a member of a defined contribution pension scheme you will likely have the option to open your pension pot from the age of 55. In some cases, schemes are set up for special industries where early retirement is likely, that allow members to access their pension pots before the age of 55. Contacting your scheme provider or seeking an advice from an independent pension adviser will help you determine the rules on early retirement that apply to your pension scheme.

While early retirement may not always be avoidable, there are some disadvantages to opening your pension pot early, these include:

  • Your pension pot will be smaller as you will have had less time to pay into it and it will have had less time to grow
  • Your retirement income will be less as it will need to be paid for longer
  • Depending on the rules of your scheme there may be early exit fees
  • If early retirement is taken during a fall in the financial market, your pension investment may not have performed as well and may not have had time to recover from market instability

Early Retirement and Defined Benefit Pension Schemes

As with defined contribution schemes, your defined benefit pension will likely permit you to take your benefits from the age of 55 and in some cases earlier than 55, this will depend on the rules of your scheme.

Early retirement from a defined benefit pension scheme could mean that your pension income is reduced as it will have to be paid for longer and you will not have had as much time to build your pension pot. Also, your defined benefit will likely be reduced as your time as a member of the scheme will be less if you retire early and therefore your accrual rate which is used to determine your benefit will be affected.

Another important to factor to consider is your state pension, you will not be able to draw your state pension until you reach state pension age. The age at which you can draw your state pension depends on when you were born. While your state pension should not be relied upon, it can provide a top up to your personal pension plan.

The financial advisers we recommend are experienced in retirement planning and regularly work with their clients in Manchester to provide independent pension advice. Our financial advisers will work with you to determine how early retirement will affect your pension pot and advise on the best course of action.

At Pensionadvice.org we can help you find a FCA registered financial adviser for independent pension advice in Manchester. The financial advisers we recommend offer bespoke pension advice in Manchester that is tailored to your unique personal circumstances.

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