Reader’s Question – Take My Pension at 55 or 60?

A Daily Mail reader asked whether they should take their NHS pension at the age of 55 or 60, and pensions expert Sir Steve Webb gave his opinion – summarised below.

As a 55-year-old with a 1995 NHS pension scheme, you’re at a crossroads: Should you start drawing your pension now or wait until you’re 60? This is a crucial decision, and understanding the implications of each choice is key.

Minimum and Normal Pension Ages

  • Minimum Pension Age: The earliest age you can access your pension. For you, it’s 55.
  • Normal Pension Age: The age you can draw your full pension. For most in the 1995 NHS scheme, it’s 60.

Taking your pension at 55 means accepting a significantly smaller pension and lump sum. How much less? Expect a 20% reduction in your pension and over 11% less in your lump sum.

The Impact of Early Withdrawal

Taking your pension early results in a permanently reduced pension. While this may not matter if you’re still earning, it could be a significant burden once you retire.

Tax Considerations

With a full-time job, adding your pension could push you into a higher tax bracket. This means losing 40% of your pension to tax instead of the standard 20%. Delaying your pension could avoid this.

Understanding Revaluation and Index-Linking

Your pension isn’t frozen between leaving the scheme and drawing the pension. It’s revalued to keep up with inflation. Waiting from 55 to 60 means a higher pension due to this revaluation.

Index-Linking: Post-Retirement Increases

Once you start drawing your pension, it increases yearly with inflation. This happens regardless of when you start taking it.

Working and Drawing a Pension

If you’re still employed in the NHS, be aware of specific rules about drawing a pension while working. These rules changed on October 1, 2023.

Lump Sum Considerations

Choosing a maximum tax-free lump sum means a lower weekly pension. Ask yourself:

  • Do you need the lump sum now for something like paying off a mortgage?
  • Are you in good health, or do you have a limited number of years to enjoy your pension?
  • What will you do with the lump sum? Investing wisely is crucial.
  • Can you manage on the reduced pension?

Seeking Professional Advice

Since these decisions impact your retirement significantly, consider consulting a financial advisor for tailored advice.

In summary, deciding when to take your NHS pension and how much lump sum to opt for is a complex decision. Weigh the pros and cons carefully, and consider seeking professional financial advice to ensure a comfortable retirement.