Private pensions

Once you reach the age of 55 (expected to rise to 57 from 2028) you can begin withdrawing money from your private pension fund. However, keep in mind that the longer you wait, the greater potential for growth and more cash or income in retirement. Early retirement not only gives you less time to save but you’ll also have many more non-working years to fund.

Once you reach retirement and you’re receiving your private or workplace pension it will be taxed as income (if your total annual income exceeds your personal tax allowance). However, one-off lump sums of up to 25% of your total pension fund are not classed as income and can be withdrawn tax-free.

If you have a flexible access pension and you’re over 55 (expected to rise to 57 from 2028) you can cash in your private pension. However, you will pay tax on any value over your 25% tax free amount. The specific rules are different depending on the type of pension you have, so check with your provider.

A workplace pension is set up through your employer where they choose the provider. The company may also contribute to your pension pot, but you may have a more restricted choice as to where and how your money is invested. A personal pension allows you to decide who will be the provider or whether you’ll make your own investment decisions. You are responsible for your contributions and they’re not topped up by your employer.

The state pension age in the UK is currently 66 years old for men and women but this age may increase. The Government’s website can tell you when you will reach state pension age, depending on your date of birth.

A pension credit is extra money provided from the government to help with housing and living costs if you’re over state pension age and on a low income.

If your husband, wife or civil partner dies, you may be eligible to receive a bereavement support payment. This is paid as a lump sum, followed by regular payments for up to 18 months.

You can usually choose to invest in one fund or spread your money over a range of funds. The funds invest in a number of varied sectors including UK and overseas shares, corporate bonds and property to try and give you the best return on your money.

A personal pension is important if you are self-employed or run your own business because the state pension alone is unlikely to be enough to fund your lifestyle. You can also start a personal pension if you already pay into a pension scheme through your work and if you feel this will improve your retirement. Alternatively, you could look at different ways of saving for your future, including investing in property, although it probably won’t be as tax-efficient as saving into a pension. 

Like all investments, the value can go up or down, and some are more risky than others. Typically those that have the potential for greater growth could also have a higher chance of losing money. The type of pension you have will determine how much control you have over where the money is invested. As you move closer to retirement you may also choose to move your pension into less risky assets, such as bonds and cash, rather than equities to protect its value.

No, you can open a pension at any age and while the sooner the better is often the guidance, opening a pension in your 50s could still be an excellent choice. Especially as you could also receive tax relief on any contributions (until age 75), which means a 25% top up for basic rate tax payers. It also depends on when you plan to retire. If you want to carry on working until later in life and delay taking your pension, starting one in your 50s may still give you years of contributions and potential growth.