Retirement age used to be simple. At the age of 65, or 60 for women, most individuals retired from work completely, and the law allowed companies to enforce the age at which people ceased employment.
That is no longer the case. Many of us plan to work for longer, some of us in part-time roles, while others hope to retire early thanks to careful financial planning. And while the age at which individuals retire is no longer set in stone, there are two major dates that everyone needs to be aware of when deciding when to stop work - the age at which they can take their state pension, and the age at which they can start to draw on their private pension savings.
Both of these ages are subject to change, and individuals should keep a careful eye on them when planning for the future.
The state pension age
The state pension, currently a maximum of £179.60 a week1, should only be part of the retirement planning solution for individuals wanting a comfortable retirement.
The age at which individuals - both men and women - receive this payment is gradually increasing and will reach 67 by 2028. The Government has not ruled out further increases in this age.
One thinktank, the Centre for Social Justice, suggests changing the state pension age to 70 by 2028 and to 75 by 20352.
The minimum pension age
While the state pension age is worth watching, as this weekly payment can top up retirement income, many people will be hoping to retire earlier than this, or at least take on less work.
That is why it is vital to understand the role of the minimum pension age - which is the time at which savers can start to access the money they have stored away in a pension for retirement.
This can be taken all at once, or left invested and drawn down in tranches. A quarter of what is taken from a pension is tax free, while individuals pay income tax at normal rates on remaining withdrawals.
At present, this is far lower than the state pension age, at 55. However, this date is due to increase as well, rising to 58 in 2028, and there is no guarantee that it will not rise further3.
This means that everyone must have a plan to ensure that they can still retire when they want to, even if they are unable to access their pension savings as early as they would like.
Here are some of the top things to consider:
The use of other tax-efficient savings wrappers such as ISAs
Money in an ISA can be used at any time, rather than at retirement age, so having a mix of different types of financial product can help to ensure that retirement can happen early.
The use of a pension as a vehicle for passing wealth down the generations
A pension is outside an individual’s estate for inheritance tax purposes, while it can also be inherited in a tax-efficient manner. This, combined with a rising minimum pension age, means that many should see this form of saving as a way of leaving a legacy, using other forms of capital first in retirement.
Cashflow planning prior to retirement
It can be hard to estimate how much money is necessary to retire, especially when there is uncertainty over when money might be accessible. Expert cashflow planning can help individuals to be sure of their goals and their projected spending and adjust their savings into different forms of product if necessary.