I joined my ex-employer’s defined contribution scheme in the late 1990s and after a transfer around 2005 the pension now sits with Standard Life.
I have always had a life target to retire at 50 yet I’m aware of the regular changes to investment limits, lifetime allowances and the age at which benefits can be taken.
Through a mixture of good luck and investment growth, I am close to the current £1.073million ceiling and now aged 43 would like to start drawing small amounts from age 50 as I switch to part-time working.
Early retirement question: I have a £1m-plus pension pot and my scheme says I can take benefits from age 50 – but isn’t the minimum age 55?
I would also like to take the 25 per cent lump sum to pay off my mortgage and see my daughter through university.
My query concerns the age at which I can take benefits. When the pension transferred to Standard Life I was told in the transfer documentation that I have a protected minimum pension age that means that I can retire from the scheme from age 50, subject to certain restrictions.
I wrote to Standard Life recently to check if this minimum age still applied, and it confirmed that it did.
Standard Life appears very confident that I can take benefits at age 50 without additional tax charges but as I am not a sports person, in ill health or party to any other special circumstance where early release of benefits can be available, I still struggle to match this with HMRC rules.
These put the age at 55, and I understand this will rise to 57 in 2028.
Knowing if I can take benefits at 50 or 57 will make a large difference to where I target future savings and therefore I really value your input.
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Steve Webb replies: One of the reasons that the government gives tax relief on pension contributions is because you are locking up your money until you are older.
But the age at which you can access your money without tax penalty, and the proportion you can access as a tax-free lump sum, have both changed over the years, partly because we are all living longer.
For most people saving into a pension today, the minimum age at which you can access a pension without a tax penalty is 55.
At that point you can typically take up to 25 per cent tax free and then pay tax on the rest.
Looking to the future, as I wrote in a column earlier this year, the Government’s plan is to increase that age to 57 in 2028 when the state pension age rises to 67. The Government has recently confirmed this plan.
However, there are exceptions to these rules.
One exception is for those who already had a pension which could be accessed before age 55 and who were members of that pension before 6 April 2006.
This date is known in the pensions world as ‘A Day’, when a number of changes were made to the rules around pensions taxation designed to simplify things.
Those who meet the various tests – and it sounds as though your pension comes in this category – have what is called a ‘protected’ pension age which can be under 55.
Provided that you stay in the scheme and do not transfer out as an individual, you should retain the right to access your pension from that scheme at 50 without tax penalty.
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There are however additional rules to keep your protected pension age, including a requirement to move all of the money in one go when you do withdraw it, and you should check with your scheme what these mean for you.
Given the size of your pension pot, I would assume that you could afford to take expert independent financial advice and would encourage you to do so, given the sums involved and the complexity of the rules.
The other very limited exceptions to the rules around accessing pensions at age 55 include, as you suggest, those who are very seriously ill and sportsmen and women whose professional career can end at an early age and to whom special rules can apply.
There are two important points for anyone to bear in mind who is thinking of accessing their pension at a relatively early age.
The first is that just because you can access a pension early it does not mean that this is a good idea. A man aged 50 is likely on average to live to 84 and has a one in four chance of living to 93. (See here to find out your own figures.)
This is a very long time to make a pension pot last, and the longer you can put off taking it, the better.
The second thing to bear in mind is that there are plenty of scammers who are keen to get people to raid their pension pots as soon as possible and transfer the money into some ‘amazing’ investment opportunity.
Apart from people who have old pensions with a ‘protected’ pension age under 55, and the very limited exceptions listed above, you are not meant to access your pension before age 55.
As the Pensions Regulator puts it: ‘Savers could lose all their money and face a high tax bill from HM Revenue and Customs (HMRC) if they withdraw their pension savings before the age of 55.’
Readers should therefore in general be very suspicious of anyone who claims to have found a tax loophole or a clever way of accessing a modern pension before the standard age of 55.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at email@example.com.
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.