Taking pension pot before retirement

Jo | 17/04/2018 | 3

  • Pension
  • Workplace Pension

Jo's question in full

Do you have information on taking your pension pot before retirement? My husband is 62, on a final salary scheme & is trying to get clear information on it.

Helena Wardle's Response

I can appreciate that it can sometimes feel like a quest to get clear information on anything pension-related! 

Most final salary pensions would allow members to retire before the final salary pension's retirement age if you are over 55. However, the amount of income he would get would typically be reduced by what is referred to as an early retirement penalty.

Final salary schemes are very individual and each scheme has their own set of rules that stipulate whether there's a penalty for taking pension benefits early. Your husband can contact his pension administrator to request an early retirement quote. This would show him what his pension options are if he received the pension now and for comparison purposes, what his estimated pension income would be at his normal retirement age. The pension quotes would generally give him the option to just take income or to take income and a tax-free lump sum.  He can also ask the scheme administrators if he would have a penalty for drawing the pension early and ask them to specify what the penalty is.

To give you an indication: for most final salary pensions, there's between 3%-5% reduction in benefits for every year before designated retirement age. So, for example, if your husband took the benefits at age 62 and the final salary pension retirement age is 65 he could have a reduction between 9% and 15% based on typical early retirement penalties. You would need to weigh this up against the loss of income if you don't draw the pension now, and how this fits in with your overall income position in retirement.

Questions to consider: Can you afford to accept the reduced income for life in exchange for drawing the pension earlier? If your husband does have a penalty to take the pension early, do you have any other savings or pensions that you could use to defer drawing on the pension until he can take it without penalty?

I always recommend that clients get a forecast from the department of work and pensions, so they understand what their estimated state pension would be. This helps build up a clearer picture of what your pension income may look like https://www.gov.uk/check-state-pension.

If you struggle to decide on the best way to take the benefits based on the information the scheme administrators provide and want a professional opinion on what option would suit you best, you may want to contact a Financial Planner to discuss this further. Some financial planners offer a free initial consultation, and they would explain the services they provide and cost so you can decide if you would prefer to employ a professional to help you. You can use websites such as www.unbiased.co.uk or www.vouchedfor.co.uk to help you find an adviser.

I hope this helps!



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Our Expert


Helena Wardle

Helena is based at Smith and Wardle Financial Planning in Hitchin, Hertfordshire. She began her career in financial services in 2006 at the Nationwide Building Society and started advising clients in 2008. She's a Chartered Financial Planner with experience providing regulated financial advice on everything from mortgages to estate planning. She’s also a qualified pension transfer specialist and all-round good sort.

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