Can I take early retirement?

There is no legal requirement to offer early retirement, so if you go early you may well be treated just as if you had left to go to another job. In general, 55 is the earliest age a pension can be drawn, except in cases of ill health. However, when the tax rules changed in 2010 to make 55 the minimum age, some exceptions were allowed (for example for scheme members who had a contractual right to draw their pension at age 50).

In general, there are no legal restrictions on drawing your pension and continuing to work for the same employer, but your pension scheme and/or your employer may impose restrictions. If you have a 'money purchase' (DC) pension and choose to draw it early, this could well mean that you have less money to provide a retirement income, for example, by buying a smaller annuity.

If you are in a salary-related scheme, you may need the employer’s and/or the trustees’ permission to draw your pension before the normal retirement age. If you are allowed to draw your pension early, it will be reduced for early payment. This is often called an 'actuarial reduction' as the reduction factor will be worked out by the scheme actuary.

Your pension will be worked out in the usual way pension based on your length of service, your salary and the accrual rate as if you were retiring at the normal retirement age. It will then be reduced to reflect the extra cost of paying the extra years of pension you are likely to claim. Typically, the reduction factor will be somewhere between 4% and 8% for each year you are younger than the scheme's normal retirement age. The Money Advice Service explains the pros and cons.

Some schemes may have arrangements that allow members to go early without a reduction once they reach a certain age (e.g. at 60). Of course, if you work longer you build up a bigger pension as you will have extra years to accrue benefits and maybe a bigger salary when you retire. Employers used sometimes to offer 'enhanced' early retirement as an alternative to redundancy, but this is unlikely to be available now that almost all schemes are in deficit.

Note: This content is provided as general background information and should not be taken as legal advice or financial advice for your particular situation. Make sure to get individual advice on your case from your union, a source on our free help page or an independent financial advisor before taking any action.

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