WHEN CAN I RETIRE?
If you asked that question 20 years ago, most advisors would have said 65. After all, 65 was the qualifying age for the contributory State Pension and the ‘standard’ Normal Retirement Age (NRA) for the Defined Benefit and Defined Contribution pensions of public sector workers and most private-sector workers.
Now, however, it depends on how you are asked the question and the type of pension(s) you have.
Do they mean The State Pension age, the earliest age you can access your pension or the latest age by which you have to access your pension?
Do you mean the State Pension age?
The qualifying age for the State Pension is 66 and was supposed to rise to 67 on 1 January 2021 but the Government made the decision not to go ahead with the increase. This change was COVID-19-related, but the rise in qualifying age was also a hot topic in all party manifestos during the last election.
Will the Government decide to stop at 67? If this is just a temporary pause, will it have a knock-on effect on the current agreement to increase the qualifying age to 68 in 2028? The newly formed Commission for Pensions is reviewing the qualifying age, along with eligibility rules and sustainability. It is due to submit recommendations to the Minister for Social Protection by 30 June 2021. Hopefully, the picture will become clearer after that.
Do you mean the earliest/latest age you can access your pension?
In order to answer this question, we need to know which type of pension(s) you have.
Personal Pensions and Personal Retirement Savings Accounts (PRSAs) have no normal retirement age. However, you do have to make a decision in relation to your chosen retirement age. The current retirement age “range” for these products is between 60 and 75. Sounds straightforward, but, of course, there are exceptions:
- Both can be accessed at any point due to ill health.
- Certain occupations allow access to benefits from both products after age 50 – for example, professional sportspeople.
- PRSAs can be accessed by employees from age 50, but only if they are leaving employment, whereas Personal Pensions cannot.
There are no issues if you choose 65 as your retirement age at the outset then change your mind and decides to access your benefits earlier (after 60) or later (before 75). However, if you do not access your benefits before your 75th birthday, the policy is automatically vested. You will have no further access to the funds, other than on death where the funds pass to the estate and will be treated as an Approved Retirement Fund (ARF) for tax purposes. Revenue has granted a concession on this requirement to 31 March 2021 to take into account people who are restricting their social interaction due to COVID-19.
Occupational Pensions and Personal Retirement Bonds
Unlike Personal Pensions and PRSAs, Occupational Pensions and Personal Retirement Bonds must have a normal retirement age of between 60 and 70. Where a transfer is made from an Occupational Pension Scheme to a Personal Retirement Bond, the normal retirement age of the Occupational Pension Scheme must be used. Again, there are some exceptions.
- Benefits can be accessed due to ill health, at any point.
- Benefits can be accessed from age 50, providing the individual has left service of the employer providing the retirement bond.
Proprietary directors accessing benefits before their normal retirement age must dispose of their shareholding in the company they are leaving. This doesn’t apply to PRSAs.
It’s a common misconception that the requirement to leave employment only applies between 50 and 60, but this is not the case. For example, if the normal retirement age of the Occupational Pension Scheme is 65 and you want to access benefits at 62, you would only be able to do so where they are leaving employment.
Unlike Personal Pensions and PRSAs, there’s no compulsory point at which benefits in an Occupational Pension Scheme or Personal Retirement Bond must be accessed so as to avoid any negative impact. So while the normal retirement age can only be set up to age 70, it is possible for you to defer taking benefits up to any age. It’s also possible, subject to Revenue limits, to continue contributions to an Occupational Pension Scheme after age 70.
Impact of proposed standardisation.
The Interdepartmental Pensions Reform & Taxation Group report published in November 2020 included a number of radical changes. Among them was the proposal to standardise the age range at which someone can access a private pension to between 55 and 75.
For Personal Pensions and PRSAs, the change is positive as it would allow you to access funds earlier than you can today, i.e. access from 55. For Occupational Pension Schemes, Personal Retirement Bonds and for employees with PRSAs, it would mean funds could no longer be accessed from 50. Those of you who have this would have to wait until age 55 instead. It could also result in a compulsory requirement to access benefits in Occupational Pension Schemes at age 75. The report has taken this into consideration and proposed a lead-in period before the proposed changes take effect. This would allow those intending to retire early to plan accordingly.
Finally, under the proposed Auto Enrolment system, the normal retirement age is to be linked to the qualifying age for State Pension (whatever that might be). If that happens, Automatic Enrolment would not be aligned to any changes to other supplementary pensions. Something that those behind the report will need to consider before making their final decisions.