As people approach the age that they want to retire, it is important that they understand what the procedures will be.
I am only an ordinary pensioner, and these are notes about what I had to do in 2016 to switch from “working” to “retired”. As the law changes continually, I don't claim that this definitely still is up-to-date; it is submitted just as an indication to the procedures. I take no responsibility for any implications of you relying upon my comments.
Everyone who has made National Insurance contributions for long enough will be entitled to a state pension. If you have missed years, it is possible to “buy” those missed years – See the official website to find out how many years and how long you have to go back and buy those years.
Up until 6 months before you retire, you can get a state pension forecast by applying online. In order to do this, you have to be registered with the Government Gateway. If you aren't, then see the Gateway home page for information on how to do this :
http://www.gateway.gov.uk/
Bear in mind that you will receive an activation key through the post when you first join, so this is something that will take a few days to get set up.
You can retire early and get less per year, or retire late and get more. So to investigate the options, look it up on the website
https://www.gov.uk/browse/working
You can see that down the right-hand column of options, there are a couple of links to pensions, so investigate those. You will find that there are several pages under each link, so allow an afternoon to look through them. Do yourself justice – look at it all when you have a bit of energy and can concentrate.
Another good source of advice is :
http://www.pensionsadvisoryservice.org.uk/
Many people will have a works pension, which when you retire will pay a certain amount every month. They normally are index-linked, and good value for money.
People may also have a private pension fund that they pay into. The money you invest can either be a lump sum, regular contributions, or a contribution of both. Fund managers invest the contributions in a pension fund or funds, buying more units the more that you invest. The value of units can go down as well as up, so on a bad year the value of your holding may go down, but it should recover. At the point of pension age, you will get a quote of the final value of the private pension fund that you have, from the manager of each private fund. You then select one (of a number of ) pension annuity bureau to obtain quotes from several annuity providers, to select the pension best for you. More than one pension fund can be processed by one annuity bureau, to buy a single pension annuity. Instead of taking all of the money as a pension annuity, you can opt to take up to ( currently ) 25% as cash, or indeed take more than that as cash BUT you pay tax on it, so maybe NOT a good idea…
The customer advisor of the pension annuity bureau conducts a 20-minute interview on the phone, to go through the options, and to explain all of the issues. For instance if you have any medical problems, and so possibly might have a lower life expectancy, you may be entitled to a higher amount each month if you ( say ) are only going to live for 20 and not 30 years.
There are variations on the annuities available. I opted for one that paid a lower amount at the start, but was linked to inflation, so will retain value over my remaining lifetime ( currently for men, we live on average another 19 years, and women a few years longer, according to the “normal distribution curve” ).
At the end of the processing by the annuity bureau, you will be presented with a list of quotes from ( say ) half a dozen annuity providers, and you then select one of those. The annuity bureau then send you the contract to read through, and to sign one to return. The chosen annuity provider will then make contact with you to arrange to start the monthly payments.
So in my case I had a state pension, a company pension and an annuity.
The state pension is paid every 4 weeks into a bank or building society account. The company and private pensions are paid monthly. As regards tax, the state pension is tax free as it is the first to come out of the tax-free allowance. The tax code we are given is the tax allowance minus the state pension. Next to come out of the tax-free allowance is the company pension, and lastly the private pension. The same tax rates apply to pensioners as to everyone else.
Supposing that you have a state pension of £9,000 and the tax-free allowance is £11,000. The tax code that you end up with is £11,000 - £9,000 = £2,000 = code 200.
Regarding when to retire, I opted to retire at the traditional age of 65 ( being one of the last to get the normal state pension at 65 ). Yes, I could have carried on; both my employer and my customers begged me to do so, but to me, time was the most important issue to me. Not only do I have a big garden and old property, I wanted to be able to study – the “third age” is a tremendous learning opportunity. Indeed, I'm doing so, and it is a thoroughly rewarding activity. So please think of the cultural and social opportunities of having free time, as well as the purely financial side. Don't get to 75 and retire, thinking “I've only got 8-10 years left – I WISH that I'd retired earlier to do all the things that I want to do”.