Final Salary Pension Early Retirement

Final salary pension early retirement

Can I take my benefits early?

Taking your benefits earlier than the Normal Retirement Age (NRA) of the scheme is possible and is not normally an issue if you are at least the age of 55 years. If you decide to take benefits early, your Final Salary Pension Scheme will calculate a reduced tax-free lump sum entitlement and a reduced annual pension income. You would not receive your full scheme pension as defined by your entitlement at the scheme’s NRA i.e., your normal retirement date.

The reduced pension will still escalate in line with a measure of inflation, it just starts from a lower amount than if you had retired at the Normal Retirement Age. This is because the scheme will start paying you a regular retirement income earlier than they had planned for, so a reduced amount is calculated.

This might be a good option if you require guaranteed regular income for life because you actually are retiring before your normal retirement date and you need the pension income to live on. Conversely, it would make little sense to take your pension early if you are earning enough money to meet your lifestyle expenses (whether working part-time or full-time) unless you wanted to use any surplus funds for a special purpose.

Calculating how much your Final Salary Pension benefits would be is best done by your scheme by way of requesting an Early Retirement Quote (ERQ). If a Final Salary Pension Transfer is possible and you have assigned an adviser to check whether a transfer out would be suitable for you, your adviser will request an ERQ on your behalf as part of the analysis process if you are below the NRD.

Note that some schemes allow members to carry on accruing benefits after their normal retirement age.

Taking your benefits early due to ill-health will require submitting medical evidence to the scheme administrators so the scheme trustees can decide what action to take regarding the level of benefits to release early. If there is a shortened life expectancy due to serious ill-health, then the trustees may have the discretion to make higher pensions payments and/or lump sum tax free cash payments. This will be on a case-by-case basis.

If the ill-health is terminal, transferring your fund to a defined contribution pension may mean the transferred amount is counted in the value of your estate for inheritance tax (IHT) purposes if you die within 2 years of making the transfer. Your adviser will explain the pros and cons of making a transfer under these circumstances and will advise on the most suitable course of action to protect your wealth for you and your heirs.

Once you are in receipt of your scheme pension, the amount you receive is then 100% protected by the pension protection fund (PPF). If the scheme gets into trouble, your retirement income is insured by the scheme’s contributions to the PPF which takes appropriate action to ensure all scheme pensioners are fully covered in the event of a scheme failing.

Unlike a defined contribution pension, you do not have a pension pot as such within a Final Salary Scheme.

There is no logical pot of money with your name on it. It could be described as a complex mix of investments with current and future liabilities to all its members.

The scheme has an obligation to pay you a regular secure income and once in payment, there is no possibility of transferring out a cash equivalent amount. Transfers can only be done before the pension starts to pay out. This works the same way as annuities do. You part with a lump sum of money to buy a guaranteed future income but you cannot reverse this by asking for the lump sum back.

This is the main reason why defined contribution pensions have better death benefits than Final Salary Pensions. Once the member, spouse and any dependent children pass, the Final Salary Scheme has no further liability to pay out to your family. If you do not have a spouse or any children, the position is even worse because you cannot pass anything onto other loved ones or bequest to charitable donations as many people do within their defined contribution pension pot.

To help you make the right decision for your final salary pension, we will take you through a clear, simple, transparent, and regulated four step process. 
If you would like to explore and discuss the options for your final salary pension transfer, - helping you make the right decision on your pension 
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