How to retire early: does it affect your pension?
Last updated 16th May 2023
5 min read
If you’ve spent years working and saving for your future, you may be wondering how to retire early.
Working towards an early retirement may seem like an attractive option. However, there are some important factors you need to know before making your decision.
To help you decide if early retirement is the right move for you, this guide takes you through what you need to start thinking about now. We answer all your big questions about when and how to retire early in the UK, and how taking an early retirement could impact your pension.
What is early retirement?
Early retirement means you stop working when you’re younger than the State Pension age(www.moneyhelper.org.uk opens in a new tab). There used to be an enforced default retirement age of 65, but this was scrapped in 2011 to allow individuals to choose when they stop working themselves.
The default retirement age now generally follows the State Pension age, which is the age at which you start receiving your State Pension.
What is the UK early retirement age?
In the UK, early retirement age is anything under the current State Pension age. As of 2023, this is 66, which is set to increase over time – so the age that is considered ‘early retirement’ will also increase.
You can learn more about this by reading our helpful guide on understanding your retirement age.
Will early retirement affect how I receive my pension?
There are some considerations you need to think about when deciding whether you should retire early, and to the different types of pension you may have access to.
Impact on State pension
Even if you retire early, you won’t start receiving your State Pension until you reach the State Pension age. So the earlier you retire, the longer you'll have to wait to start receiving payments. You'll need to factor this in when considering your future financial security and whether you should retire early.
Use this handy government calculator(www.gov.uk opens in a new tab) to find out your State Pension age.
Impact on workplace pensions
When it comes to your workplace pension, the rules will vary from provider to provider. Some schemes may not allow you to take your pension before what's called the ‘normal retirement age’ that is defined by the scheme itself.
Make sure to get in touch with your pension scheme administrators (or refer to your pension benefits statements) to find out the ‘normal retirement age’ and any early retirement benefits that may be on offer.
Impact on defined contribution pensions
If you can withdraw from a defined contribution scheme early, you are likely to receive a smaller pension than you would if you had worked right up until the normal scheme retirement age. This is because you'll have had fewer years to pay into your pension pot.
On top of that, as the money in your pension pot will need to be paid out over a longer period, your regular payments will be smaller.
Impact on defined benefit or 'final salary' pensions
Final salary schemes calculate your pension as a fraction of your final salary (as defined by your scheme) multiplied by the number of years you were a part of the scheme. As you would have spent fewer years in the scheme with an early retirement, your pension will be smaller if you retire early.
If you want to retire before the defined ‘normal retirement age’, your pension scheme may also reduce the amount of pension they pay out to you.
Impact on personal pensions
Some providers allow you to start taking money from your personal pension as young as 55. If you’re not sure when you’ll be able to start taking out your personal pension, or how taking it out early will affect your pension in the long run, contact your provider. An expert financial adviser can also help you make the right decision for your needs.
How to retire early
There is no set rulebook on how to retire early. Achieving early retirement is completely down to you, your financial planning and your unique set of circumstances.
You’ll want to have enough financial security to live comfortably in retirement. So while we can’t offer a step-by-step guide, we can give you some points to think about:
- When can you start drawing out your workplace pensions, private personal pensions or State Pension payments?
- How much income are you likely to receive from your pension provider(s)?
- Do you still need to pay off existing loans or your mortgage?
- How will your benefits change after retirement? Consider any loss of workplace benefits, such as a company car.
- What sort of lifestyle do you want after retirement, and what would it cost?
Ultimately, an early retirement requires careful planning – you can read more about how much money you need to retire in our guide.
Can you retire early due to ill health?
If you are retiring due to ill health, there is the possibility that your pension scheme will allow you to access your pension pot early and/or receive higher payments than usual.
If you have a life expectancy of less than a year, it may also be possible for you to receive your entire pension pot as one tax-free lump sum. If that’s the case, you will need:
- To be under 75 years of age
- To have less than the lifetime allowance in pension savings (although the lifetime allowance is being scrapped from April 2024(www.moneyhelper.org.uk opens in a new tab))
Read our guide on ill health retirement for more information and speak to your pension provider to find out their policy on early retirement due to ill health.
Taking phased retirement
Instead of taking early retirement, some people choose to take a phased approach. This is when you gradually reduce your working hours over a prolonged period of time, while only withdrawing a small part of your workplace pension.
You should check with your workplace pension provider whether they offer this option – allowing you to draw out only a small part of your pension before increasing the amount at a later date.
Should I retire early?
Remember, it’s important to get expert advice from a qualified financial adviser if you’re thinking of retiring early.
After reading this guide, we hope you have more confidence in your decision about whether you should retire early, and what you need to have in place to prepare for early retirement.
For more information, read our retirement planning guide, which discusses how you can increase your personal or workplace pension pot.
 Moneyhelper.org.uk (2022), State Pension: an overview(www.moneyhelper.org.uk opens in a new tab)
 Gov.uk (2023), Check your State Pension age(www.gov.uk opens in a new tab)
 Gov.uk (2023), Early retirement, your pension and benefits(www.gov.uk opens in a new tab)