Are You Approaching 55? Here’s How Your Pension Options Change

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When you reach fifty-five, the good news is that the options available for your pension pot open up considerably. Your choices regarding your pension pot mean you now have much greater flexibility for your retirement. 

New pension freedoms which came about in 2015 now allow you to take as much of your pension savings as you wish when you turn fifty-five, so long as your pension scheme is eligible. You can take your money as a lump sum, several lump sums, or you can leave it invested in providing an income when you retire. We’ll take a look at these options in a bit more detail later. 

Taking a lump sum of cash when you reach fifty-five might seem appealing, mainly if it covers an immediate financial need. However, removing money from your pension could leave you short of income when you come to give up work. Before you make any rash decisions regarding your pension pot, you should consider all your options carefully. 

Changing Retirement Times

There have been significant changes to the pension world in recent years, and these changes are likely to continue. The age at which you can draw your State Pension is gradually increasing, and you can check when you qualify for yours on the website. At the same time, the government has reduced the age at which many people can access their private pension funds. If this seems a bit contradictory, hopefully, we can help explain what’s going on. 

The reason for the State Pension age increase is due to the population living longer. Also, advancements in health and medical care mean that we can extend our working lives. Longer life means a longer retirement, so the money you save for your retirement has got to last longer and work harder for you.

Pension Freedom

The government introduced pension freedom legislation in 2015 to help support changes to the retirement environment. Now, you can access your pension pot at fifty-five rather than having to wait until your sixties. Of course, not all pension schemes are bound by this legislation, so you should check to find out if yours does. 

Getting access to your pension funds early can be beneficial for easing financial stress or enhancing your standard of living in the run-up to your retirement. However, you should be wary of taking too much money out of your pension pot if it will leave you short of income when you retire. 

Regardless of the option you choose, you should seek regulated financial advice about the choices available to you and the associated risks and benefits. 

Your Pension Options 

When you reach fifty-five, you have several options as to what you do with your pension funds. 

  • Tax-Free Lump Sum. A significant benefit of pension freedom is your option to take a tax-free lump sum of up to 25% of your pension’s value. Taking up to a quarter of your pension could prove beneficial if you have a significant capital expense pending, such as home improvements or a wedding ceremony. The remainder of the money in your pension will remain invested in providing an income on your retirement. 
  • Pension Release. You can take as much money from your pension, and doing so is called pension release. However, you should be aware that only the first 25% is eligible for tax exemption. Anything above that will be taxed at the appropriate rate, and the rate you pay will depend on your financial circumstances. You should discuss your situation with a regulated financial advisor, and they can help you make the best choices. 
  • Pension Drawdown. Another option available to you for accessing your pension pot is pension drawdown, where you access your money as a regular income. You will still enjoy tax exemption on the first 25% of your funds. Pension drawdown is an excellent way to boost your income and assist with downsizing your work commitments or perhaps going part-time as you approach full retirement. 

Who Is Eligible For Pension Freedoms?

Not everyone can access their pension funds from the age of fifty-five. The reason has nothing to do with the individual but depends on the type of pension you have. If you have a personal pension fund, are in a workplace pension scheme, or have a final salary pension, you can access pension freedom benefits. However, you can’t access the State Pension or an unfunded pension at fifty-five. There are some cases whereby you can swap a pension that doesn’t qualify to a scheme that does. A regulated financial advisor can advise you on your options for doing so. 

Before thinking about your pension, get in touch with a regulated pensions specialist like Portafina or, view the information at The Money Advice Service

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