How to retire early: does it affect your pension?

What is early retirement?

Early retirement means you stop working when you’re younger than the State Pension age(www.moneyhelper.org.uk opens in a new tab). There used to be an enforced default retirement age of 65. But this was scrapped in 2011, so you can now choose when you stop working yourself.

The default retirement age now generally follows the State Pension age. This is the age at which you start receiving your State Pension.

What is the UK early retirement age?

In the UK, early retirement age is anything under the current State Pension age. As of 2024, this is 66. This is set to increase over time – so the age that's considered ‘early retirement’ will also increase.

You can learn more about this by reading our guide to understanding your retirement age.

Will early retirement affect how I receive my pension?

There are a few things you need to consider when deciding if you should retire early. You'll also have to take into account the different types of pension you may have access to.

Impact on State Pension

Even if you retire early, you won’t start receiving your State Pension until you reach the State Pension age. So the earlier you retire, the longer you'll have to wait to start receiving payments. You'll need to factor this in when considering if you should retire early. (You’ll also need to factor in how long you’ve worked for and contributed to qualify for a state pension, as well as what level of state pension you qualify for.)

Use this handy government calculator(www.gov.uk opens in a new tab) to find out your State Pension age.

Impact on workplace pensions

When it comes to your workplace pension, the rules will vary from provider to provider. Some schemes may not let you to take your pension before what's called the ‘normal retirement age’. This age will be defined by the scheme itself.

Get in touch with your pension scheme administrators (or check your pension benefits statements) to find out the ‘normal retirement age’. They'll also be able to tell you about any early retirement benefits on offer.

Impact on defined contribution pensions

You may be able to withdraw from a defined contribution scheme early. If so, you're likely to get a smaller pension than if you'd worked up until the normal scheme retirement. This is because you'll have had fewer years to pay into your pension pot.

On top of that, the money in your pension pot will need to be paid out over a longer period. So your regular payments will be smaller.

Impact on defined benefit or 'final salary' pensions

Final salary schemes calculate your pension as a fraction of your final salary (as defined by your scheme). This is then multiplied by the number of years you were a part of the scheme. Your pension will be smaller if you retire early, as you will have spent fewer years in the scheme.

If you want to retire before the defined ‘normal retirement age’, your pension scheme may also reduce the amount of pension they give you.

Impact on personal pensions

Some providers allow you to start taking money from your personal pension as young as 55. If you’re not sure when you’ll be able to start taking out your personal pension, or how taking it out early will affect your pension in the long run, contact your provider. An expert financial adviser can also help you make the right decision for your needs.

How to retire early

There is no set rulebook on how to retire early. Achieving early retirement is completely down to you, your financial planning and your circumstances.

You’ll want to have enough financial security to live comfortably in retirement. So while we can’t offer a step-by-step guide, we can give you some points to think about:

• When can you start drawing out your workplace pensions, private personal pensions or State Pension payments?
• How much income are you likely to receive from your pension provider(s)?
• Do you still need to pay off existing loans or your mortgage?
• How will your benefits change after retirement? Consider any loss of workplace benefits, such as a company car.
• What sort of lifestyle do you want after retirement, and what would it cost?

Ultimately, an early retirement requires careful planning. You can read more about how much money you need to retire in our guide.

Can you retire early due to ill health?

If you're retiring due to ill health, your pension scheme may allow you to access your pension pot early and/or receive higher payments than usual.

If you have a life expectancy of less than a year, you may also be able to get your entire pension pot as one tax-free lump sum. Your pension provider can confirm their policy on early retirement due to ill health, so it's a good idea to discuss your options with them. You can also read our guide to ill health retirement.

Taking phased retirement

Instead of taking early retirement, some people choose to take a phased approach. This is when you gradually reduce your working hours over a period of time, while withdrawing a small part of your workplace pension. You can then increase the amount you withdraw at a later date. You should check with your workplace pension provider to see if they offer this option.

Should I retire early?

Remember, it’s important to get expert advice from a qualified financial adviser if you’re thinking of retiring early.

We hope you now have more confidence about whether or not you should retire early, and what you need to prepare for early retirement.

For more information, read our retirement planning guide. It explains how you can increase your personal or workplace pension pot.