Is Early Retirement an Option?

What is early retirement?

Early retirement means stopping work earlier than the current state retirement age, which is currently 60 for women and 65 for men, although this is being equalised to 65 for both sexes by 2020, and gradually extended to 68 for everyone by 2044.

There is no legal obligation on your employer to let you retire early, so if they do not agree to release you, you will be treated as resigning in the usual way. However, in a climate where most employers are keen to shed some staff to save costs, granting requests for early retirement is more a favourable alternative to making redundancies from a morale and publicity perspective.

What effect will it have on your state pension?

If you retire earlier than the state retirement age, you will not be able to claim your state pension sooner. Accordingly, you will have to rely on other, private means until you reach your state pensionable age. So for a man retiring early at 50, he will have to fund his living expenses exclusively from his own pocket for 15 years until his state pension kicks in at 65.

 Further, giving up work can have another effect on your state pension entitlement. If you do not have enough “qualifying years” of actual or deemed National Insurance Contributions, you may not be entitled to a full state pension in any event. The number of “qualifying years” you needs depends on how old you are, and when you intend to retire. For women who have taken time out of the workplace to raise children or care for elderly relatives, there may be a home responsibilities credit available to fill such gaps in their employment. So before you hand in your notice, check with the Department for Work and Pensions that your decision to stop early will not affect this.

What effect will it have on your private pension?

The current law allows you to draw down from private pensions at the age of 50, although this is rising to 55 in April 2010. Private pensions might allow you to take retirement earlier than you had previously envisaged, although the decision to allow this could be at the discretion of some anonymous trustees.

The question with a private pension is: can you afford early retirement? In the pensions world, “longevity” is often complained about as a financial problem to be overcome, rather than celebrated thanks to our national improved health and living conditions. However, it is an inescapable fact that if you are going to live longer than your grandfather, you will have to have a bigger pension pot to fund a longer retirement.

Ill health 

Most schemes allow members to retire early on the grounds of ill health. The conditions to be met are quite stringent. Even if you meet them, if you are married or have a civil partner and are seriously ill, new pensions regulations continue to fetter your freedom to spend your pension fund in your own way, insisting that you use 50% of the fund to purchase a survivor’s spouse’s pension.

Are you ready to retire yet?

Apart from the financial implications or early retirement, it is worth pausing to consider whether you are actually ready. Work comes with an inbuilt social life and sense of motivation. Are you ready to give that up? As a senior member of your organization, you may enjoy being at the peak of your career, and be passionate about passing on your know-how to younger generations. Whilst the so-called baby boomer generation are not characterised by “pipe and slipper” retirements, it can take some time to adjust to the new, retired, you. 

It’s a sad fact that, despite anti-ageism legislation being in place, there is a bias against recruiting more mature candidates for certain posts. So consider your decision carefully before handing in your letter of resignation: it may be a one-way trip.

What are the alternatives?

With millions facing shortfalls in their private pension funds and the realisation that the state will not provide a comfortable retirement, part time and flexible working is bound to increase among the over 50s. This is a middle way between full time working life and retirement.

Notwithstanding the recent falls in property prices, if you bought your house a long time ago you could be sitting on a comfortable cushion of equity. Take careful advice from a regulated adviser before proceeding with such a scheme, but it could be a method of releasing some capital to help your children onto the property ladder or fund the trip of a lifetime without actually having to retire.

To help you to decide whether a QROPS is correct you, contact us today using the form on the contact Qrops Adviser page or email us direct at info@qropsadviser.com