How to retire early in the UK

Early retirement in the UK is a growing trend. According to Prudential’s early retirement report, 60% of retirees in 2018 finished working before their state pension age or company pension retirement date.

Further, the so-called FIRE movement (“financial independence, retire early”) is seeing people in their 40s and 50s give up work to pursue their passions.

But so that people can make the most of their post-career lives, it’s vital those seeking early retirement in the UK work towards their ‘escape plan’ as early as possible.

Which is why we’ve written a guide on how to retire early in the UK.

What is the retirement age in the UK – and is it set to change?

Your state pension age

This is currently 65 for those about to retire but could be 66 or 67, depending on how old you are now.

To find out when you’ll be eligible for a state pension, use the calculator on the government website.

The younger you are, the less you can depend on your projected state pension age to stay the same. A prominent think-tank recently suggested the age could be raised to 75 for today’s younger generation.

Your normal retirement age

This can be set by your scheme provider, or it can be a date chosen at the outset of a personal plan.

The earliest ‘official’ retirement age

Applying to all UK citizens, this is the earliest you can draw benefits from a pension (serious illness notwithstanding) and stands at 55 years of age (UPDATE: This is now expected to rise to 57 by 2028 – you can read more about this here).

Beware of anyone who tells you differently – they could be part of a fraudulent ‘pension liberation’ scheme.

The first step towards early retirement in the UK – your pension

The government ‘rewards’ you for saving into a pension through tax relief. Which means if you’re seeking early retirement, you must be maxing out your pension entitlements as soon as possible.

So, what pension entitlements you should look to maximise?

The two main ones to bear in mind are:

The annual allowance

This is the maximum amount you can invest every year. Normally, it’s the lower of 100% of earnings or £40,000. (You can put in more, but contributions above this limit aren’t eligible for tax relief, so it’s not usually advisable.)

The lifetime allowance (LTA)

This is the maximum amount you’re allowed to take from any pension over the course of your lifetime without incurring a tax penalty. Currently, the lifetime allowance stands at £1,055,000 and is reviewed annually in line with inflation.

Your financial adviser should guide you on this; it is an area we often discuss with our clients.

Because of the tax-relief benefits pensions provide, it makes sense to put as much into your pension as you can, as early as you can. Our advice? Seek help from a qualified specialist.

What about employer pensions?

Try to take advantage of employer pensions, which are done on your behalf via auto-enrolment or another company or occupational scheme. Opting out may mean a higher salary in the short-term but could see you miss out on thousands of pounds in the long-term – seriously hampering your early retirement dreams.

If you’re planning on opening a personal pension in addition to your workplace pension, be careful. You may need professional advice to avoid falling foul of the annual limits.

Investing in individual savings accounts (ISAs)

 After pensions, ISAs are often the next best option for those planning early retirement in the UK.

Funds held within an ISA aren’t subject to capital gains tax or income tax – and most of the time they’re relatively accessible.

You can invest up to £20,000 a year across any number of ISAs you hold, although you can only open one of each type of ISA per tax year.

Those aiming for early retirement in the UK should try to use this allowance up, as your savings and investments will be able to grow without being weighed down by taxes. Also, you don’t have to declare your ISAs on your tax return, which is one less administrative headache to worry about.

General investment accounts (GIAs)

If you can maximise both your annual pension and ISA allowances, you can carry on investing through a general investment account (GIA).

There’s no cap on what you can put into a GIA, but income and gains from GIAs will be taxed according to your individual tax status.

As time goes on, it typically makes sense to shift funds out of GIAs and into tax-efficient environments like ISAs and pensions.

If you’re unsure how GIAs can help towards your early retirement, contact your financial adviser or get in touch with us.

Reviewing your investment strategy

To retire early in the UK, it’s important that your investment strategy is reviewed and updated annually, as each year you’re granted a new set of reliefs and allowances to use up.

Not only that, but the rules are subject to change depending on government legislation – so it always pays to be proactive.

Seeking early retirement in the UK? Speak to Robertson Baxter

Whilst we’ve given you some pointers on how to retire early in the UK, we haven’t touched on things like how to find the best investment strategy for you and how to manage your risk.

As such, to fully understand and plan towards your early retirement, you should speak to an independent financial adviser.

Contact us on 01484 608095 or through our website and we could help turn your early retirement dream into a reality.


    More stories

    03 Jan 2020

    The Yorkshire Financial Awards 2020 – Finalists!

    Read more

    25 Sep 2019

    A guide to inheritance tax planning: How to leave more to those you love most

    Read more