Retire when it’s right for you

New pension changes offer greater flexibility as to how you access your savings. Whether you want to start life after work as soon as possible, or feel that 65 is just too early, understanding your options is important.

With life expectancy now stretching beyond 801, more than one million British workers are choosing to work past the state pension age2. And it’s a trend that’s set to continue according to information stating that 40% of younger employees also plan to carry on in some capacity3.

While 16.8% continue to work past 65 to pay for essential items, almost half are simply not ready to hang up their hats. Instead, these individuals are enjoying retaining some of the structure, purpose and challenge of employment. For two-thirds, this is through part-time work and for over a third it’s through self-employment4.

But those who don’t wish to carry on working could enjoy a longer and healthier retirement than ever before: statistics suggest that, on average, a 65-year-old can look forward to another twenty years, ten of which are likely to be enjoyed in fairly good health5.

Regardless of which route you plan to take, understanding the pension changes that came into force in April 2015 will help you to get the most out of your hard-earned savings.

Defined contribution pensions can now be withdrawn in full, as a lump sum although this is dependent on the scheme rules allowing this. But while this might sound attractive to those planning a significant change, trip or new project, potentially up to 75% of the withdrawal will be taxable6. It’s wise to explore your options fully, as a 25% pension withdrawal coupled with other asset sources may provide a more lucrative option.

While those who stay at work past the state pension age will not have to make National Insurance Contributions, they will still have to pay income tax on their earnings at their highest marginal rate. Pensions, savings and investment income will also be subject to this taxation, which may affect tax allowances or social benefits related to age or savings rate.

If you don’t need to claim your state pension when you reach the age threshold, you may also be able to benefit from deferring your claim. Depending on when you reach state pension age, you could gain as much as 10.4% for every year that you delay claiming7. A private or company pension, or personal savings, could be used to cover living costs during this period. The rules are different for private pensions, however, so it is important to consult a professional to explain your individual situation.

New legislation and greater pension freedom has given workers the choice to retire when they’re ready, rather than when they reach an arbitrary age. But with life expectancy on the rise, it’s important to understand how the decisions that you make now could affect your future lifestyle.


1 World Bank Data, 03/12/14

2 Older People’s Day: 1 million in work over 65: 3 years since end of default retirement age, Department for Work and Pensions, GOV.UK, 01/10/14.

3 Flexible Pensions allow Britons to Work Past Retirement Age, Emma Wall, Morningstar, 11/08/14.

4 Why people are working past their State Pension Age, Office of National Statistics.

5 Fuller working lives – background evidence, GOV.UK, 16/02/12.

6 Tax when you get a pension, GOV.UK.

7 Defer your state pension, GOV.UK

Important Information

Tax treatment depends on individual circumstances and may be subject to change.

This article has been provided to Bank of Scotland Private Banking by external/third party contributors and contains their views as at July 2015 and should not be relied upon as fact and could be proved wrong. The information and opinions may not be accurate after this date. The views expressed may not reflect the views of Bank of Scotland plc.

Bank of Scotland Private Banking assumes no responsibility for the content or any reliance upon the content of the third party websites detailed in this article. The forecast of future figures or events is not a reliable guide to actual future figures or events and cannot be guaranteed.

Bank of Scotland plc. Registered office: The Mound, Edinburgh, EH1 1YZ. Registered in Scotland, no. SC327000. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority under number 169628.

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