Overview of retirement

Retirement Age

You can retire at any age you want – as long as you can afford it – but the default retirement age in the UK is 65. When you reach this age your employer can give you notice to retire unless your employment contract specifies a later age as the normal retirement age. If the employer wants to introduce a lower normal retirement age than 65, it must be objectively justified. Your employers cannot “retire” you early: if they want to get rid of you before the normal or default retirement age they must have a fair reason for dismissal and follow the normal dismissal procedures. 

Notification

Employers must give you at least 6 months’ written (and no more than 12 months) notice of the date they want you to retire. They also have a duty to tell you that you can ask to work for longer. They must meet you to discuss your request to carry on working and you can appeal if your request is rejected. Employers who fail to comply with these notification requirements could face an unfair dismissal case before an employment tribunal. 

Pension age 

State pensions

You can only claim your state pension when you reach state pension age. State pension age is 65 for a man and 60 for a woman born on or before 5 April 1950. The state pension age for women born on or after 6 April 1950 will rise to 65 between 2010 and 2020. It will increase for both men and women from age 65 to 68 between 2024 and 2046.  

Private pensions

The earliest you can receive a company or personal pension at present is 50, although your pension scheme rules may differ. From 2010 this rises to 55.

Early retirement

State pensions

The earlier you retire the less 'qualifying years' you will have built up and thus the less state pension you will receive. A qualifying year is a tax year in which you have sufficient earnings upon which you have paid, are treated as having paid or have been credited with, national insurance contributions (NICs). You can boost your NIC record by taking part-time or casual work or by paying voluntary NICs. Men over 60 are entitled to NIC credits until they reach 65.

If you’re single, seriously ill and likely to live less than a year, you can retire at any age and take up to 100% of your pension fund as a tax-free lump sum. Spouses and civil partners can only take half this amount, as they must leave some money in the scheme to provide for their partner’s pension.

Private pensions

The effect of early retirement on your company, personal or stakeholder pension scheme will depend on the rules of your particular scheme, although many schemes allow for early retirement if you become so physically or mentally ill that you’re unable to carry on working. Early retirement on grounds of something other than ill-health though will probably result in you receiving a smaller annual sum.

Pension shortfalls

If you don’t think your pension is going to be able to support you when you retire it’s important to get advice as soon as possible from an authorised financial adviser. Options to help top up your pension total include:

• Buying added years in a final salary scheme.
• Upping your contributions into a company or personal plan – there is no limit on how much you can pay into most pension schemes, although you’ll only get tax relief up to a certain amount.  
• Invest in something tax efficient like Individual Savings Accounts (ISAs) to supplement your pension.
• Try to trace pension rights from previous jobs.

Tracing a personal or personal pension scheme

Many people change jobs several times during their careers and often join a new pension when they start a new job. It’s hard to keep up with which pensions you have where, but the Pension Service provides a pension tracing service to help you find the contact details of a personal or company pension scheme even if you're not sure of the contact details. It has access to a database of over 200,000 occupational and personal pension schemes which can be used, free of charge, to search for a scheme (see www.thepensionservice.gov.uk/atoz/atozdetailed/traceForm.asp).

Retirement benefits

Apart from your state pension, there are a number of benefits you may be entitled to when you retire including:

• Winter fuel payment – UK residents aged 60-79 can get up to £200 towards your heating bills and up to £300 if they are aged 80 or over.
• Cold weather payment – you may be eligible for a cash payment from the Social Fund for each week of very cold weather in your area.
• Pension credit - from the age of 60, you're entitled to a minimum weekly income of £124.05 if you're single and £189.35 if you have a partner. If your income is below this, pension credit can make up the difference.
• Carer's allowance, housing benefit and council tax benefit – these may be available to you depending on your circumstances.

Tax office

You should tell HM Revenue & Customs (HMRC) when you retire to avoid an overpayment or underpayment of tax. You’ll need to tell them: your tax reference and national insurance number (see your P60); your date of birth; the start date and amount of your state pension; the start date and amount of any company or personal pensions you'll be receiving. You may need to fill in a self assessment tax return if you have income from other sources if you’re not doing so already.