When Can I Retire?

This is a question that many people find themselves asking, but the answer isn’t usually straightforward. There is a combination of factors that need to be considered when assessing if the time is right to retire. In this article, we’ll consider the factors that make for a successful and financially stress-free retirement.

How do I fund my Retirement?

Between 2012-2018, the government rolled out a new legal requirement under the Pensions Act 2008 called auto-enrolment. This meant that all eligible workers were required to be enrolled into a pension scheme to help fund their retirement. Therefore, for most of us, we will have some level of private pension provision available to us. This is good news, as pensions are a great tool for retirement, due to the generous tax benefits provided. However, you could also fund retirement through other means, such as savings or investments.

Can I Open My Own Pension?

Yes, absolutely. There are a wide range of pension providers to choose from, but if you are unsure, a financial planner can help you decide.

What are the Different Types of Pension?

 There are two types of pension to be aware of: Defined Benefit and Defined Contribution.

A Defined Benefit pension pays a guaranteed level of income to you every year from a pre-specified age. Since the turn of the century, these have become less popular, and you are more likely to have one if you began working before 2000. They are still used in the public sector however, meaning NHS workers, Civil Servants and Police Officers may have Defined Benefit pensions, for example.

More commonly these days, a Defined Contribution pension builds up a pot which both you and your employer will contribute to, and it is invested in a variety of different assets. Under current legislation, you can access a Defined Contribution pension at age 55, but this is increasing to age 57 from 2028. When you reach the minimum pension age, you can draw benefits from this pension in a variety of ways. You could take a one-off lump sum or regular lump sums from the pot, or exchange some or all of the value for an annuity – This will pay a pre-specified income for either a set term or for life, similar to a Defined Benefit pension. The option which is right for you will depend on your circumstances, however, employing a financial planner means they can look at your overall position and help to provide guidance on what option would be best for you. If you open a pension on your own, this will be a Defined Contribution pension.

You can read our guide on Defined Contribution pension retirement options here.

If you are unsure on the type of pension you have, or do not know the details of your pension, speak with your employer who should be able to provide some details.

The below link provides some further information on the difference between the two types of pension.

Defined benefit vs defined contribution pensions: what’s the difference? | Unbiased

How Much Can I Contribute to a Pension?

Each individual has an annual allowance in which they can contribute to pensions each year of £60,000, however, this is capped at their relevant UK earnings in any given tax year. You can however carry forward any unused allowance from the previous three tax years. If you do not have any earnings, you are restricted to a maximum contribution of £3,600 per annum. Please note, the figures noted above are gross contributions after basic rate tax relief is applied.

Some individuals may have a reduced allowance. If you take money from a private pension, you will trigger the ‘Money Purchase Annual Allowance’ (MPAA), which reduces your allowance to £10,000. For anyone with earnings over £260,000, you will generally lose £1 of allowance for every £2 over £260,000 you earn, to a minimum allowance of £10,000. This calculation is complex, and we would advise consulting a financial planner to help you understand this better.

Below are some examples of the annual allowances available to a range of individuals:

• Adam, who is 40, earns £35,000 per annum and is self-employed, so therefore was not automatically enrolled into a pension, and has not made any pension contributions in the last 5 years. His allowance would be capped at £35,000 as this is his earnings for the tax year.
• Jade, who is 45, earns £90,000 per annum and has contributed £10,000 per annum into her workplace pension for the previous 3 tax years. Jade will have £50,000 remaining of this year’s annual allowance but also has unused allowance from last year of £50,000 too. Jade can use the remainder of this year’s allowance as she earns above this amount and can carry forward £30,000 of last years allowance to take her up to her maximum contribution limit of £90,000 for this tax year based on her earnings.
• Simon, who is 50, earns £320,000 per annum, and opted out of his employer’s workplace pension, meaning he has not made any contributions this year. For every £2 over £260,000 he earns, he loses £1 of his annual allowance. As Simon earns £60,000 over £260,000, he would lose £30,000 of his allowance. This means he can contribute a maximum of £30,000 this tax year to a pension.
• Mary, who is 70, is retired and does not earn an income. She is therefore restricted to paying a maximum of £3,600 into her pension.

You may benefit further from reading Royal London’s guide on pension tax relief and allowances:

Understanding pension tax relief and annual allowance – Royal London

Can I Consolidate My Pensions?

Yes – And this is usually a smart thing to do. By consolidating pensions together, you can keep a clear track of how much you have saved for retirement. It also allows you to manage easier how your pension is invested and the costs applicable.

If you wish to transfer any of your pensions, your current provider can tell you how this is done, as this varies between providers. A financial planner can help you do this and identify the most suitable provider to consolidate into and provide a personalised investment strategy. They can also action the transfers on your behalf and if you wish, manage your new pension on an ongoing basis, meaning you can focus on the things that are important to you.

It should be noted that consolidation does not use your annual allowance limits.

What are the Tax Benefits of Contributing to a Pension?

There are various tax benefits available, and these are listed below:

• You receive tax-relief up to your marginal rate of income tax on any contributions made. If you contribute to a pension personally, basic rate relief of 20% is added directly into the pension. Any higher rate or additional rate tax relief needs to be reclaimed via self-assessment. Your employer can opt to pay into your pension via salary sacrifice, whereby contributions are deducted before tax and national insurance are taken, meaning tax relief is given up front.
• You can take 25% of your pension pot tax-free. Whilst the rest is taxable as income, a financial planner can work with you on a retirement strategy to minimise the tax payable.
• Any investment growth, or interest/dividends received from your investments, is completely free of UK Capital Gains Tax and Income Tax.
• Currently, pensions do not form part of your estate for Inheritance Tax purposes, but this is set to change from April 2027.

Tax on your private pension contributions: Tax relief – GOV.UK

I Cannot Contribute Anymore to a Pension, What Other Options Do I Have?

There are a range of savings vehicles that can be used. Pensions are generally recommended as a first port of call due to the generous tax benefits offered.

If you have maxed out your annual allowance however and have further funds available to save away, consider using up your ISA allowance of £20,000 each tax year. ISAs allow you to either save cash in a Cash ISA, or invest in a Stocks & Shares ISA. Like a pension, any investment growth or income received is tax-free. The main difference, however, is when you withdraw from an ISA, the entire withdrawal is tax-free.

Once your ISA allowance has been exhausted, turn to high-yielding savings accounts or investment in a General Investment Account.

There are other more-complex investment vehicles available, and their suitability will depend on your individual circumstances. You can consult a financial planner to see if they are right for you.

Try reading our guide on other allowances you can make the most of to maximise the tax-efficiency of your financial arrangements:

Fairview Financial Management – Seven Allowances to Use Before the Tax-Year End

How Much Tax Will I Pay on my Pension When I Retire?

For a Defined Benefit pension, all income you receive will be taxable at your marginal rate of income tax. You will usually receive the option to take a tax-free lump sum, in exchange for a reduced annual pension. Again, which option is right for you can depend on your situation, and speaking with a financial planner can help with this.

For a Defined Contribution pension, you will be entitled to at least 25% of the total fund value tax-free. Some pension schemes may have a higher amount, and you should consult your pension provider to see if you are eligible. The remaining 75% will be taxable at your marginal rate of income tax.

When do I get my State Pension?

Currently, both men and women receive their State Pension at age 66. However, with effect from 06 May 2026, this is set to rise to age 67. For people born between 06 April 1960 and 05 March 1961 however, it is a little-less straightforward.

There is a ‘transitional period’ where people born between 06 April 1960 and 05 March 1961 would reach age 66 just as or soon after the State Pension age rises. Therefore, to stop people born during this time being required to wait a full year, you will need to wait an extra month for each month into the tax year you were born. For example, someone who was born on 01 November 1960 (7 months into the tax year), will get their State Pension at age 66 years and 7 months old, and so forth.

We have looked at a number of case studies below:

• When do I get my State Pension if I was born in 1959? – You will be entitled to your State Pension at age 66, in 2025.
• When do I get my State Pension if I was born in 1960? – If you were born before April 06, you be entitled to your State Pension at age 66 in 2026. If you were born after April 06, you will be entitled to your State Pension at age 66 plus however many months you were born into the tax year.
• When do I get my State Pension If I was born in 1961? – If you were born before April 2026, you will be entitled to your State Pension at age 66 plus however many months you were born into the tax year. If you were born after this, you will receive your State Pension at age 67, in 2028.
• When do I get my State Pension if I was born in 1962? – You will be entitled to your State Pension at age 67, in 2029.

How do I get my State Pension?

Your State Pension is not paid automatically. You should receive an invitation letter from the Pension Service prior to reaching State Pension age, so keep an eye out for this.

Your State Pension will then be paid every 4 weeks. The State Pension is taxable; however, the current State Pension is below the personal allowance of £12,570, meaning it will be tax-free if you have no other income.

How much is my State Pension?

Currently, the full State Pension is £221.20 per week, and this is set to increase by 4.1% from April 2025 to £230.25 per week. To receive any State Pension, you are required to have at least 10 years of qualifying National Insurance Contributions. To get the full State Pension, you require 35 full years of qualifying National Insurance Contributions. There are various ways to accrue qualifying national insurance contributions. These include:

• Earn a minimum of £6,396 per annum. Whilst you will not pay National Insurance earning between this amount and £12,584 per annum, you will be treated as paying National Insurance contributions for your State Pension.
• Claiming Child Benefit entitles you to be treated as paying National Insurance contributions for your State Pension.
• Paying Class 3 Voluntary National Insurance contributions. The amount you pay varies on the year of contributions you are topping up, and how much you earnt in the given tax year. You can view how much you will need to pay by logging into your Government Gateway account.

This means, that someone who began working at the age of 18 and earnt above the Lower Earnings Limit of £6,396 for their entire career, could have the full 35 years contributions by the time they reach age 53. Retiring at age 53 however means you would need to wait 14 years for your State Pension, so you should ensure you have sufficient Private Pension provision.

You may also find reading Royal London’s guide to the State Pension worthwhile:

State Pension: What It Is & How It Works – Royal London

So then, How Much Do I Need to Retire?

This is not a black or white answer and ultimately depends on a variety of factors such as any guaranteed income you are due to receive from the State Pension or a Defined Benefit pension, and how you envisage your retirement lifestyle to be. The ‘ideal’ number will be different for everyone. For some people with low costs, they may be able to get by just on their State Pension. Others who wish to spend more, may require a pot of, £100,000, £500,000 or £1,000,000 – It is unique to you and your lifestyle.

A good starting point, however, would be to decide an amount you wish to spend per annum. This should consider your regular bills but also include how much you want to spend on ‘living’. You should then work out what guaranteed income you are due to receive (such as a State Pension or Defined Benefit Pension), to identify any shortfalls in your income. This will then tell you how much you need to draw from your assets each year to live your desired lifestyle.

Of course, however, the future is unpredictable, and although you may have a preconceived idea of how much you wish to spend each year, this will invariably change. This could be due to one-off large costs such as a holiday you hadn’t foreseen, a car replacement, or even because inflation is higher than forecast and the purchasing power of your assets decrease. You also cannot predict how much your current assets will grow over time, whether that is due to investment growth or a change in savings interest rates. This can make the overall picture a little bit murky, but a financial planner can help you clear this up.

How Can Fairview Financial Management Help You?

Fairview Financial Management can help you in several ways to meet your retirement goals and ensure you have a financially stress-free retirement. To help you meet these goals, we can:

• Conduct an exercise called ‘Cashflow Modelling’ – This is where we can plot your expected income and forecasted expenditure, and graphically visualise if you have the means to afford your desired lifestyle. We can conduct ‘stress-tests’, such as a market crash, to understand the robustness of your position, and factor in basically anything you want us to in your financial plan. For example, we could model extra holidays, helping the kids get on the property ladder or buying a motor home.
• If you have a Defined Benefit pension, we can help you understand what option is right for you when you reach the schemes retirement age. This is done by assessing your wider financial situation, aiming to understand whether a higher level of income would be more suitable, or whether there is a benefit to taking an initial lump sum but sacrificing some of your income.
• If you have a Defined Contribution pension, we can assess the retirement options available under your current contract, and help you make an informed decision on which option is right for you.

This is just a glimpse into the many areas of expertise you can tap into. From tax planning for both high earners and those looking to decumulate and retire, making the most out of their pension provision, to estate planning and supporting those going through a life-changing event, we’re here to help.

Most importantly however, we can keep a watchful eye on your financial position so that you don’t have to, using our expertise to help you reach your goals, to allow you to focus on the things that are important to you.

You can book an initial, no-obligation and free of charge chat with us today, here.