Five ways to reduce your retirement age


Research by former pensions minister, Steve Webb, has revealed how hundreds of thousands of workers could have been using inconsistent information provided by the government to plan their retirement.

Since 2016, more than 12million pension forecasts have been viewed by workers using the government’s online Check your State Pension service. However, the government has since admitted that up to 3% of calculations generated could have been incorrect, meaning hundreds of people could have been building their retirement plans using wrong information.

In some cases, new forecasts were more than £1,500 a year higher than had previously been expected, which could leave some workers out of pocket when it comes to retiring at their chosen age.

The issue has been further compounded by the new transitional state pension age (SPA) that came into effect in December 2018, meaning that the younger you are, the longer you will have to wait to receive any state pension contributions.

Your state pension age under the most recent plans (2017)

Your date of birth State pension age
After 6 April 1978 68
6 April 1970 – 5 April 1978 67 years 1 month to 68 years*
6 April 1960 – 5 April 1970 66 years 1 month to 67 years*
6 December 1953 to 5 April 1960 65 years 3 months to 66 years*

*Depends on exact date of birth

While the SPA has been “triple-locked”, meaning it will rise in line with the highest of inflation, for some an early retirement is becoming further out of reach. As a result, many of us are working longer, with a record 1.2 million – more than 10% – of over 65s employed, more than double when records began in 1992.

However, with some careful planning and advice from a financial adviser, you could help to reduce the age at which you are currently able to retire.

Here are five steps you can take to help improve your chances of retiring early.

Have a Plan

The first step is to work out the gap between when you would like to retire and your state pension age. From there you can begin to calculate how many years of ‘missing’ income you will face by retiring ahead of your SPA and how much money you need to save to achieve a suitable monthly income in retirement. Be sure to account for any potential unforeseen circumstances too, such as an inability to work for as long as you hoped and changes in investment returns on savings, taxation and inflation.

Embrace Auto-enrolment

Whilst having to sacrifice 5% of your current monthly income may seem steep in some people’s eyes, using your workplace pension scheme to save every month will bring a welcome boost to your pension pot further down the line. With a 3% contribution made by your employer and tax relief on top, you could be missing out on vital additional capital by not signing up.

Save as much as you can afford to

Everyone has an annual pension allowance of 100% of their salary or £40,000, whichever is lower, except those with an income above £110,000, when the allowance is reduced to £10,000. When you pay into a pension, some of the money that you would have paid in tax on your earnings goes into your pension pot rather than to the government. Tax relief is paid at the highest rate of income tax you pay, so for a basic rate taxpayer this is 20%.

You also have a £20,000 ISA limit each year – whilst you do not get a tax refund when you pay into an ISA, your investment is protected from tax, so you do not pay any tax on the interest you earn.

Start early

When we are young it can be difficult to think ahead to what our golden years will look like however, the earlier you start saving the less it will cost you to retire early. This is due to the effect of compound investment returns over time combined with the additional contributions you can make into various tax wrappers by putting money aside earlier in your career.

Check your NI Contributions

The maximum state pension is available once 35 years of NI contributions have been made. Those reaching SPA after 2051 will automatically qualify however those born before 1983 could get less or more in total due to the new transitional SPA arrangements noted above. You can request a forecast of your state pension online and, if it comes up short, consider paying in extra voluntary contributions.

With the new pension freedoms allowing us to dip into our private pension pots from age 55, workers now have the option to start drawing a private pension while they are still working. For example, should you wish to reduce your working hours as you get older, you could support your income by making withdrawals from a private pension until your state pension kicks in to fill the gap.

For more advice about planning for the future and how you could boost your pension funds, please contact a Finura adviser.

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