Can I retire early because of illness or disability?

You can usually take money from your defined contribution pension when you reach the age of 55, and both men and women have to wait until age 66 to claim their State Pension. Defined benefit, or final salary pension schemes, usually start paying a retirement income at age 65 or State Pension age. However, if you need to retire early then you may want to access your pension before the age at which you can access your particular pension.

Some pension schemes will allow you to withdraw money early on the basis of ill health or disability. This is known as being ‘medically retired’.

Bear in mind that different schemes use different definitions of illness and disability. Some might state that your condition needs to prevent you from doing any kind of work at all, not just your current role, in order for you to qualify.

Also remember that taking your pension early has financial implications. You will lose out on future investment gains if the money had remained invested in a defined contribution pension. Also, bear in mind that you can take 25% of your pension tax-free at 55, but the rest will be subject to income tax, so be careful about how much you choose to withdraw. Read our articles Should I take my tax-free pension cash at 55? and How can I manage the financial impact of early retirement? for more information. 

You may also receive a lower pension than you would otherwise be entitled to if you’re accessing a defined benefit, or final salary scheme early. This leaves you with less money over the course of your retirement, unless your employer offers an enhanced early retirement package by paying your pension as if you’d worked until the normal pension age. 

If you’re terminally ill, with a life expectancy of less than one year, you may be able to take your entire pension pot as a tax-free lump sum, provided you’re under 75 and your doctor can provide confirmation of your condition.

It’s really important to think very carefully before withdrawing money from your pension early, and speak to an advisor or pensions expert if you need help weighing up your options.

Author: wpadmin

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