If you have a defined benefit pension did you know that you don’t need to wait until ‘normal retirement age’ to take the benefits? 

Receiving your pension income early could mean you can retire early! 

There is a catch though. As the pension will be paid for longer than expected, your benefits will be reduced.  

So should you do it or is there a better option? 

Taking your defined benefit pension early 


A defined benefit pension, sometimes known as a final salary pension, usually has what’s called a ‘normal retirement age’. This is the date the pension scheme is expecting to pay out your benefits.  

The typical age is 65 and if you’re lucky enough it may even be 60. 

To be clear, this is not the age you need to retire. You can still work and receive pension benefits if you wanted to.  

You could also delay taking your benefits if you wished to work past the normal retirement age. 

The earliest age at which you can take any pension benefits is age 55, known as the minimum pension age. There are plans to raise the minimum pension age to 57 from April 2028 onwards. 

Taking your pension early could be ideal if you want to retire early or reduce your working hours. After all, a bird in the hand is worth two in the bush.  

There is a downside to taking your pension early though. The scheme will apply an ‘early reduction factor’ and reduce your pension benefits.  

For example, the early reduction factor could be 5% for each year you take benefits early. Which means if your pension benefits were due to be £25,000 per year from age 65. You would receive £18,750 per year if you took the pension early at age 60. 

The earlier you take benefits the worst the penalty will be.

Changing your defined benefit pension

There is another way though. In some cases it may be more appropriate to transfer your private sector defined benefit pension to a personal defined contribution pension.  

This means you will give up the income for life for a transfer value that you then manage.  

One advantage of this approach is that you can avoid the early reduction factor, initially at least. 

You see by managing your own pot means you can withdraw whatever you like from your pension from minimum retirement age. So if you wanted to take early retirement and spend more during your early years of retirement and less in your later years then you could do that.  

You might even reduce your pension withdrawals once your State Pension kicks in.  

Of course in the majority of cases a defined benefit pension transfer is not going to be appropriate because you are giving up a secure income and subjecting your pension to investment risk. There is always the danger the pension money runs out if not managed appropriately. 

For some though it could make your retirement dreams come true. 

If you would like more information on defined benefit pensions vs personal pensions and the best way for you to achieve the retirement you desire please schedule a no obligation free 15-minute call 

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.