All final salary pension schemes state a ‘normal retirement age’ (NRA) at which retirement benefits from the scheme become payable. For most schemes this is between 60 and 65, although there has recently been the start of a slight trend towards higher ages in recent years.

Almost all of these schemes permit benefits to be provided earlier than the NRA, but only at the discretion of the scheme trustees. For most pension scheme members the scheme trustees’ discretion is a formality, allowing benefits to be taken before NRA: usually from the age of 50 (although this minimum age is to increase to 55 from April 2010).

Some schemes, however, refuse to permit benefits to be taken before NRA or state that early retirement is not permitted more than 5 years before NRA. If you are wanting to take benefits before the NRA of your final salary pension scheme and you are not permitted to do so, consider transferring your benefits away from that scheme. A personal pension, accepting a transfer value from your current scheme, allows you a great deal of flexibility in many respects (direction of death benefits, phasing-in of pension benefits, tax free cash etc) and will always permit you to take benefits from the earliest possible age allowed by law: 50 (55, from April 2010).

The ability to take benefits before the scheme NRA will usually not, in isolation, be a financially sound enough reason to transfer benefits from a final salary pension scheme to a personal pension, but if it matters to an individual scheme member then it would certainly be a good reason to Ask The Pensions Office! 

Most schemes do permit benefits to be taken before NRA but will impose an actuarial reduction to the level of benefits. This principle is completely fair, of course, as the scheme member will receive payments for some months or years before the scheme had promised to start paying them. However, it is the level of this reduction that might give cause for concern, with some schemes imposing huge ‘penalties’.

If you are a member of a final salary pension scheme and want to start to draw benefits – whether a tax free lump sum or a regular pension, or both – before the scheme NRA you must ensure you are aware of the level and fairness of the scheme’s actuarial reduction. You can then decide whether to take your benefits from the scheme, take a transfer value to a personal pension or, indeed, resist the attraction altogether of taking benefits before NRA.

Before you make the decision…….