The UK retirement age can refer to the age at which you can access the state pension. But there’s a different, lower age to keep in mind when accessing workplace or personal pensions.
If you’re self-employed, you might have workplace pensions if you’ve been employed before.
And as there’s no pension auto-enrolment for the self-employed, you might instead be saving for retirement using a personal pension.
The UK no longer has a default retirement age. The law was changed in 2011 to stop employers forcing people to retire at 65. You can continue working for as long as you want (or need) to.
Instead, there are pension ages, at which you can access a pension – including the state pension and other pensions you might have.
The state pension has changed in recent years. It used to be that women could get the state pension at 60 and men could get it at 65. It now largely depends on when you were born and whether you’re male or female – it can be between 61 and 68.
It’s currently set at 66 for men and women, will rise to 67 by 2028, and lots of younger people will have to wait until they’re 68 to start claiming.
The reason for the increase in state pension age is changing life expectancy. You don’t have to stop working when you reach state pension age.
Gov.uk has a retirement calculator that you can use to work out your state pension age. All you need to do is enter your date of birth and gov.uk will tell you when you start claiming.
Under ‘pension freedom’ rules introduced by the government in 2015, you have more flexibility about how you access ‘defined contribution’ pensions when you reach 55 (increasing to 57 in 2028). This age is when you can access your personal pensions without getting an unauthorised payment tax charge.
Most modern workplace and personal pensions are defined contribution schemes, with the pension’s value determined by the money contributed, as well as investment performance over time.
When you reach this age, you can take 25 per cent of your pension tax-free, either as a lump sum or in separate smaller amounts. Then you can use the rest as you like – either by making more withdrawals (and paying income tax) or by buying an annuity.
An annuity is a product that gives you a guaranteed income for the rest of your life, depending on the size of your pension as well as other factors (like your age and health).
These pension freedom rules mean that it’s possible to access your pension while you’re still working.
The retirement ages above are when you can access pensions – but if you want to ‘retire’, or simply stop working, there’s no set age.
For many people though, retiring means being able to stop working while still being financially secure, and a pension gives you that security.
It’s important that self-employed people think about when they’d like to retire. Having a particular age in mind is one of the first steps in retirement planning. That’s because if you’re 40 and you know you’d like to retire at 60, you can figure out how much you’ll need to save into your pension each month to be able to live the life you want to lead in retirement.
The earlier you start saving the better, as you won’t need to contribute as much into your pension each month if you start earlier.
It’s worth taking professional retirement advice to help you understand your options.
While some company owners may be able to sell their business to help fund retirement (this needs a detailed exit strategy), many self-employed people are their business. So, when they retire, the business likely won’t have much value.
It’s therefore important to use a pension, although self-employed people often find it difficult to save. According to IPSE, only 31 per cent of self-employed people are saving into a pension.
But paying into a pension gives you generous tax relief on your contributions, usually up to £40,000 a year. If you’re a basic-rate taxpayer, this means you’ll get an extra £25 for every £100 you pay in.
For higher-rate taxpayers, you can claim back a further £25 for every £100 you pay in, when you come to do your tax return.
The government has made pension planning more of a priority in recent years. Here are some websites you can use to get free pension guidance:
You can also read our guide to self-employed pensions for more information about the different pensions available to self-employed people.
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