For many, reaching age 55 means that they are able to start drawing pension income. For others, it may well prompt a review of their finances with thoughts of retirement on the horizon. So, if you are reaching 55 now or in the near future, what should you be thinking about in relation to retirement?
When can I access my pension?
Well, first of all, if you are considering accessing your pension then you should check whether you are able to do so! Age 55 is deemed the ‘minimum pension age’ in legislation. However, a recent Finance Bill confirmed that this minimum pension age will rise to 57 from April 2028. The Bill also sets out the conditions in which some may still be able to access pensions at 55, so it is important that you understand whether accessing pensions at 55 will actually be allowable.
Budgeting for a bucket list?
For those who do indeed have the right to access pensions at 55, then careful consideration must be given to how these benefits will be taken. Do you need to access pensions at this time or would you benefit from deferring and hoping for some investment growth? If your heart is set on retiring at 55, then careful planning will be required. Have you looked at your expected expenditure? What do you wish to do in retirement, do you have a bucket list? Will you require lump sums or a regular income?
Retirement benefits from pensions may take many forms, from purchasing an annuity (that is converting your pension pot to a regular, fixed income), to drawing down your pension whilst keeping it invested. If you are electing to draw some income down from your pension, you should consider how this may be taxed and therefore look to optimise the allowances available to you.
Knowing the risks
Remaining invested naturally brings with it an element of investment risk, and consideration should be given to the sustainability of the level of income drawn. According to the ONS*, a male aged 55 in 2024 has an average life expectancy of 84, with a 1 in 4 chance of reaching 92. For a female, the average life expectancy rises to 87, with a 1 in 4 chance of reaching 95. That is a long time for your pension pot to have to generate income in drawdown and consideration must be given to the risk of running out of money.
The pensions lexicon contains an alphabet soup of terms, including PCLS (Pension Commencement Lump Sum) and UFPLS (Uncrystallised Funds Pensions Lump Sum), so it would help to fully understand what these terms mean and to ensure that your pension allows all the flexible ways in which a pension may be taken. Most modern pensions do but you may have accumulated smaller pensions throughout your working life which may not. If your pension does not provide the full options available, you may find that you are limited in scope.
Pension MOT
If you do not wish to draw benefits at age 55, then perhaps you should consider a pension MOT. Are you on track for your desired lifestyle? Should you consolidate the pensions you have, or should you leave them where they are? Do you need to take more investment risk to grow your pension or are you taking too much risk and need to dial it back? Are you on track to qualify for the full state pension?
Given the ever-changing pensions landscape, working with a professional planner will help you to navigate these choppy waters and help you plan the life you wish for in retirement.
Richard Libberton is an experienced Chartered Financial Planner within our Wealth department. He has held a number of senior positions within some of the UK’s largest mutual life, pensions and investments companies during his career.
*source ONS average life expectancy calculator, January 2024
Thomson Cooper are authorised and regulated by the Financial Conduct Authority, FCA number 104673. Remember that the value of investments can fall as well as rise. Tax rates and allowances depend on individual circumstances.