Should I wait to access my pension?

13th January 2022

At a glance:

  • If you can afford to leave your pension untouched for the near future, your money will remain invested and could grow into a larger savings pile – although there’s always an element of risk with investment.
  • You can continue paying into a pension after retirement to further boost your savings and benefit from tax relief until age 75. How much you can contribute depends on your employment status alongside whether and how much you have withdrawn from the pot.
  • Check with your pension scheme or provider which specific rules they might have, and always speak with a financial adviser before making any decisions.

There’s a whole range of options when it comes to mapping out your finances for retirement, but one question looms large over everything else. None of us can say how long we are going to live for. So while you can know which savings, assets and sources of income you have to rely on, it’s impossible to gauge whether those life savings will need to last twenty years, thirty-five years or even much longer.

We do know, however, that life expectancy has been trending upwards. A man aged 55 today can expect to reach 84 years old, while having a 25% chance of living to 92 years old and a one-in-ten chance of reaching 97, according to the Office for National Statistics (ONS)1.

The same ONS data reveals that women tend to have longer lifespans than men, with the average female aged 55 today projected to live to 87. A quarter of those her age will live to be 94 years old, one in ten will reach the age of 98 and six per cent will see their 100th birthday. That’s nearly double the figure for men.2

The start of retirement

As experts in retirement planning, we also know that people aren’t retiring in the same way that previous generations did. More people are choosing to work on past the age of 55 – the point at which savers with defined contribution pensions become eligible to start withdrawing their savings. Semi-retirement is becoming more common, where people step back into part-time work or maybe take a couple of years off before returning to their profession or retraining.

Approaching the age of 55 is becoming more like the ‘start’ of retirement and people are increasingly turning to financial advisers and asking ‘should I leave my pension where it is?’

Here are the key points to think through:

  • If you plan to keep working or have other income streams – such as property, for example – leaving your pension invested gives it an opportunity to potentially grow. This means that when you decide to take the tax-free lump sum that savers are entitled to (currently 25% of your total pension savings), it will be a larger amount. Be aware that any investment can fall in value.
  • In addition, one strategy in retirement is to live off the dividend income and interest from investments, rather than withdrawing the capital saved. The larger your pension, the more potential income it may generate.
  • This needs to be tempered with ensuring that the investment strategy for your pension has been adapted appropriately. This is because the best way of investing when accumulating savings is very different to the optimal way of investing for later life, when there needs to be a careful balance between preserving your savings while also using them.

You can keep contributing to a pension and receive tax relief until the age of 75, boosting your savings to ensure a comfortable ‘full’ retirement when you get there. (Tax relief is the government top-up to your savings that’s based on your income tax band).

However, people can get caught out by a little-known clause called the ‘money purchase annual allowance’ (MPAA). The rules around this are quite complex and it’s vital to get expert advice, especially if you haven’t properly ‘retired’ yet and plan to carry on working and paying into your pension.

The MPAA is a restriction on the amount that an individual can keep saving into their pension and still receive tax relief, which is £4,000 for the 2020-21 tax year. It is often triggered by withdrawing more than the permitted tax-free lump sum, and can clearly have major detrimental effects on your retirement plans.

Online retirement calculators such as the one available on the St. James’ Place website can be useful in providing an indication of what you need to save and the targets you might want to reach to be comfortable financially. But they have limitations; financial advisers use more sophisticated cashflow planning software which can factor in what might happen to your retirement if there were slumps in investment markets and what the financial implications of gradual retirement may be.

If you or your partner are considering your options for retirement, we can help guide you through the process. Please contact us for more information.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief is generally dependent on individual circumstances.


1,2 Office for National Statistics, Life expectancy calculator, dataset released on 2 December 2019