UK has minimum age for retirement fund access, does anywhere else?

[twistedfirestarter]

In the UK you cannot gain access to what is in our "private pension pots" (not social security, this isn't due until age 67) until we reach 55 years old. After this point 25% of the total pot can be withdrawn tax free and the rest is available but taxed as income so careful drawdown is required.

I am employed and my company puts in 10% of my salary into this pension if I put in at least 6%, I'd be mad not to pay in but I hope to have been FI for a decade by 55 so it'll be a bit late to the party.

Do you have these sort of age restrictions?

I can invest this money how I like, currently it is with the same broker as my FIRE savings.

Struggling to get my head round how a separate lump sum boost plus few years of drawdown at age 55 helps the FIRE picture when at the start I need a certain figure one pot to live off the dividends.

Thanks in advance,

[Blackeagle]

The US has minimum ages to access money in most types of retirement plans.  It's generally 59.5 years of age, but there are some variations and exceptions.

MMM talks about this some from the US perspective in this post:
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

[twistedfirestarter]

The US has minimum ages to access money in most types of retirement plans.  It's generally 59.5 years of age, but there are some variations and exceptions.

MMM talks about this some from the US perspective in this post:
http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

Thank you Blackeagle, this is exactly what I was looking for. Never really understood what 401K was apart from that it's a US specific financial instrument so hadn't read the articles around it.

[cerat0n1a]

Struggling to get my head round how a separate lump sum boost plus few years of drawdown at age 55 helps the FIRE picture when at the start I need a certain figure one pot to live off the dividends.

Depends on your individual circumstances. If you make the maths easy and say retire at 50, you need 5x your annual expenses to get you from 50 to 55 outside of the pension wrapper and say 20x your annual expenses in your pension. You hope/expect that during those five years, the investments in the pension grow such that when you actually hit 55, you now have 25x annual expenses in there. If on the other hand, you retire aged 25, the pension becomes mostly irrelevant, because you needed 25x annual expenses at the start. That's ignoring complications like income tax etc.

The pension is such a great way to boost net worth, it makes sense for most people to make use of it, particularly if you're paying tax in the 40/60/45% bands, because the money goes in there tax free, whereas the money you put into an ISA is money you've already paid tax on. That's before you take into account company contributions.

There are some pension related tricks to get access to money a little earlier, such as taking out a mortgage and then paying it off with the 25% lump sum age 55, but seems a little dubious to me.

Basically, while the 4% rule is a good guideline, you still need to do some more detailed calculations as you get nearer to target, which include the effects of tax, when you can access pension pots, including state pension at 67 etc etc. and work out how to balance things between pension/ISA/accounts with no tax benefits. Obviously the rules around those things keep changing too. At least we don't have to worry about ridiculous healthcare costs.

There's a calculator here: http://the7circles.uk/savings-rate-four-pot-solution/
 
Haven't used it myself, but the principles seem correct.

[twistedfirestarter]

Struggling to get my head round how a separate lump sum boost plus few years of drawdown at age 55 helps the FIRE picture when at the start I need a certain figure one pot to live off the dividends.

Depends on your individual circumstances. If you make the maths easy and say retire at 50, you need 5x your annual expenses to get you from 50 to 55 outside of the pension wrapper and say 20x your annual expenses in your pension. You hope/expect that during those five years, the investments in the pension grow such that when you actually hit 55, you now have 25x annual expenses in there. If on the other hand, you retire aged 25, the pension becomes mostly irrelevant, because you needed 25x annual expenses at the start. That's ignoring complications like income tax etc.

The pension is such a great way to boost net worth, it makes sense for most people to make use of it, particularly if you're paying tax in the 40/60/45% bands, because the money goes in there tax free, whereas the money you put into an ISA is money you've already paid tax on. That's before you take into account company contributions.

There are some pension related tricks to get access to money a little earlier, such as taking out a mortgage and then paying it off with the 25% lump sum age 55, but seems a little dubious to me.

Basically, while the 4% rule is a good guideline, you still need to do some more detailed calculations as you get nearer to target, which include the effects of tax, when you can access pension pots, including state pension at 67 etc etc. and work out how to balance things between pension/ISA/accounts with no tax benefits. Obviously the rules around those things keep changing too. At least we don't have to worry about ridiculous healthcare costs.

There's a calculator here: http://the7circles.uk/savings-rate-four-pot-solution/
 
Haven't used it myself, but the principles seem correct.

Thanks, followed that link to the7circles and found loads of relevant uk centric info.

All the healthcare worries,cost and confusion I read about from our friends over the pond makes me more grateful for the NHS every day, it can be a bit slow and bureaucratic but sooo much better than the US model in my opinion.

I am paying into a pension and will continue to due to the employer match and tax efficiency but will work out using the 4 pot method (well only 3 pots for me) in the link to see how balanced my pots will be.

[Rowellen]

In Australia, it's between 55 and 65 depending on your date of birth and retirement status.

[Mr Zombie]

My two pennies.

Ignoring employer contributions on a company pensions would be silly, it's free money.  I'd get my grubby claws all over it, especially if you're being taxed at 40%.

Yes it's locked away until 55+ depending on your age, but it's a question of liquidity really.  It doesn't matter that's it locked away until the moment you need it.

You need to plan to bridge the gap between stopping work and needing your pension.  The 4% rule (or 3.5% or 3% or whatever you think about) should still apply to you savings in total, no change ther,e there's admittedly an added complication in the split of the savings.

I'm in a similar situation.  I've maxed out contributions to my workplace pension (to get the maximum company match) and a little bit more.  Then I'm maxing out my ISA (a tax free savings account we get in the UK). 

I'm being overly prudent in my projections, but they tell me I should be fine to bridge the gap from about the age of 40.

Mr Z

[FI-42]

My two pennies.

Ignoring employer contributions on a company pensions would be silly, it's free money.  I'd get my grubby claws all over it, especially if you're being taxed at 40%.

Yes it's locked away until 55+ depending on your age, but it's a question of liquidity really.  It doesn't matter that's it locked away until the moment you need it.

You need to plan to bridge the gap between stopping work and needing your pension.  The 4% rule (or 3.5% or 3% or whatever you think about) should still apply to you savings in total, no change ther,e there's admittedly an added complication in the split of the savings.

I'm in a similar situation.  I've maxed out contributions to my workplace pension (to get the maximum company match) and a little bit more.  Then I'm maxing out my ISA (a tax free savings account we get in the UK). 

I'm being overly prudent in my projections, but they tell me I should be fine to bridge the gap from about the age of 40.

Mr Z

Bravo Mr Z - this is always my advice to others.  Don't forget that if your company offers salary sacrifice and you can do AVC (additional voluntary contribution) you'll boost your savings by whatever tax rate PLUS national insurance (+32% for 20% tax bracket / +42% at 40% tax bracket as Ceratonia has stated) and additionally 9% student loan rate if that affects you.  Because you are in effect reducing your salary your employer also pays less NI - my old employer used to take half of this and give the other half into my pension.

The UK pension system is incredibly generous because you get a 25% tax free withdrawal when you officially start to draw down your retirement accounts.

Good Monevator article on pensions vs ISAs here:
http://monevator.com/pensions-versus-isas/

[daverobev]

In Canada, there are "LIRA"s - Locked In Retirement Accounts - which you can't get at til retirement ("retirement" defined by the pension you were part of before you left and it got converted to a LIRA!). https://en.wikipedia.org/wiki/Locked-In_Retirement_Account

You earn "RRSP" (registered retirement savings plan) room as a percentage of what you earn, but that is not locked in; rather it is tax deferred (you don't pay income tax on earnings that are contributed, but do pay when you withdraw - including on growth).

The ISA is just amazing, especially with the current limits. I'm super jealous; I wish I'd understood how amazing it was when I had access to one. Oh well.

[twistedfirestarter]

The ISA is just amazing, especially with the current limits. I'm super jealous; I wish I'd understood how amazing it was when I had access to one. Oh well.

Completely agree, current ISA limits are very generous, I doubt they'll stay at this level.

[vittelx]

Denmark here.

For the most part the rule is that you can withdraw your retirement funds 5 years before the official retirement age(when you are eligible for state pension - currently 67 years).

Current government wants to raise that age though as people generally tends to get older.

As a side note members of parlament can of cause retire at age 60 with full government pension(30,000 DKK - $4,000 USD/month) for the rest of their lives.....f**king hypocrites.

[Linea_Norway]

In Norway you'd normally have to wait to the age of 67, but you can request for 62. If you choose 62, you'll get a 30% lower income for the rest of the period, or something like that.

We have 3 kinds of pensions. There is the state social security pension, that everyone gets, but the amount is based on what you contributed during work. There are old-fashion style pensions where you save up a certain amount and get paid out a certain index adjusted sum until you dye. Those pensions are often disappearing nowadays. New style pensions or those where you save up a sum and that can be paid back to you after 67 over 10 or 20? years. The fastest way to get your money is to let them pay you in 10 years. And you'll have a bigger chance of still being alive in that period. But after that period, you won't get anything more.
For those who choose to receive their pension from the age of 62, you can choose to put that money into an fund a let if grow from there. You might get more that way.

[Linea_Norway]

Denmark here.

For the most part the rule is that you can withdraw your retirement funds 5 years before the official retirement age(when you are eligible for state pension - currently 67 years).

Current government wants to raise that age though as people generally tends to get older.

As a side note members of parlament can of cause retire at age 60 with full government pension(30,000 DKK - $4,000 USD/month) for the rest of their lives.....f**king hypocrites.

If that 76 year old age would raise, my retirement calculations would be seriously fucked up. I count on not having anywhere near 25 x my yearly spending level during fire, but instead yearly spending level x number of years until 67. If that period get longer, we will have a problem.

And, yes, parliament members are always hypocrites. They have way more benefits than the rest of the population. Also, when they change pension rules, they always do this for people younger than themselves. I hope that at the next change, I will be old enough to be kept under the old rules, for a change.

[Erma]

Switzerland: Three pillar system

1st one is obligatory. You have to pay in it until you are 64 (female) or 65 (male) either from your salary or if you don't work they calculate how much you have to pay. You can get it earlier (max. 2 years) then you get a smaller pension or later (max. 5 years) then you get a bigger pension. It should be between 1175 and 2250 CHF per month and should cover basic living expenses. I think that's funny because health insurance and rents are usually in that range.

2nd one is obligatory if you earn more than 21'150 CHF per year. You and your employer each pay half of it but you can not choose how it is invested. You can get that at the same ages as the first pillar or you can use it to buy a house or pay back a mortgage. It is tax deductible.

3rd one is voluntary. You can pay 6768 CHF per year in it and it pays a little bit more interest than a normal bank account or you can put it in some mixed investing forms with a max. amount of I think 50% in stocks. Also available at retirement age or to buy a house or to pay back a mortgage. Also tax deductible.

[dreams_and_discoveries]

Yeah, I can cope with the minimum age, but what irks is that the government can raise that age before I get to retirement age, which makes FIRE planning really difficult.....I'm modelling with 58 now, but if it gets any higher it could be a risky time....I'd need to get bridging finance or something. But at the end of the day, we can only plan with what we know, and as long as we keep up to date with developments, we can remodel and replan when the regulations change.

[cerat0n1a]

Yeah, I can cope with the minimum age, but what irks is that the government can raise that age before I get to retirement age, which makes FIRE planning really difficult.....I'm modelling with 58 now, but if it gets any higher it could be a risky time....I'd need to get bridging finance or something. But at the end of the day, we can only plan with what we know, and as long as we keep up to date with developments, we can remodel and replan when the regulations change.

In fairness, they do usually change things reasonably slowly and with a fair amount of warning. The proposal to move the minimum access age from 55 to 57 was made in 2014 (but not actually put into law yet) with the suggestion being that it would come into effect from 2028.  The equalisation of the state pension age for men and women was phased in over many years.

[Playing with Fire UK]

I'm also concerned about changing the pension access age. My plan is to pull the FIREing pin with enough stache to get me to age 58, and enough in the pension to last after that. But I'm having to make decisions now about how much to put in the pension, and will be making decisions about when I'm quitting work ~20 years before I can access my pension. I'd also expect that any decision to raise the pension access age is going to coincide with a recession, as the government will be skint, investments will have dropped off and it will be a crap time to try to get a job for a couple of years. If there was a guarantee that they wouldn't change it without 15 years notice, that would be enough; but it's the constant uncertainty that drags me down.

I'm hoping to be able to use a big mortgage to spread out some of the pension access risk. So I'll take out a mortgage my last year in work (ideally interest only but who knows if that will be possible) and then pay it off when I can access my SIPP. But I'm finding that getting a mortgage on an unmortgaged property is a total nightmare in the UK at the moment.

[skip207]

The draft legislation seems to get put back and back when it comes to the SIPP age but it is looking like at some point (prob 2020) that the SIPP age will have a 10 year negative delta on the SP age. 

Personally its a PITA, but I can wait a couple more years.  Just so long as they don't play silly buggers and put SP age to 70.... which I have a feeling is coming tbh.  I can also see SP being means tested at some point.

The govt have not gone to all the trouble of the WPPS for nothing!

My plan is to have enough in the fund to cover 45 to 55 with a good lifestyle and probably 5 years basic income kept to one side just to cover any changes in legislation.
 

[AnnaGrowsAMustache]

NZ does - 65. You can only get your money out earlier for specific purposes: the purchase of a first house that you will actually be residing in, extreme financial hardship or serious illness.

You can choose what fund manager your invest with, though, and the level of contributions you make, 3 (employer matched), 4 or 8%

[cerat0n1a]

I'm finding that getting a mortgage on an unmortgaged property is a total nightmare in the UK at the moment.

Interesting.  Care to tell us more? I have been mulling over (not particularly seriously) the idea of taking out a mortgage to fund development of an eco self-build and had assumed that with income >> outgoings and no debt that it would be a very good proposition for the bank, particularly as the mortgage would be less than a third of the value of the house.

Paid off the mortgage many years ago, when interest rates were 6% (and because paid out of income taxed at a marginal rate of 40%, I would therefore have needed to find an investment returning 10% to have done better.) In hindsight, it would have been better to leverage up and borrow as much as possible.

[Linea_Norway]

NZ does - 65. You can only get your money out earlier for specific purposes: the purchase of a first house that you will actually be residing in, extreme financial hardship or serious illness.

Would having no income count as "extreme financial hardship"?

[Playing with Fire UK]

I'm finding that getting a mortgage on an unmortgaged property is a total nightmare in the UK at the moment.

Interesting.  Care to tell us more? I have been mulling over (not particularly seriously) the idea of taking out a mortgage to fund development of an eco self-build and had assumed that with income >> outgoings and no debt that it would be a very good proposition for the bank, particularly as the mortgage would be less than a third of the value of the house.

Paid off the mortgage many years ago, when interest rates were 6% (and because paid out of income taxed at a marginal rate of 40%, I would therefore have needed to find an investment returning 10% to have done better.) In hindsight, it would have been better to leverage up and borrow as much as possible.

Sure, so most lenders won't consider 'living expenses' or 'replenishing savings' as a reason for a new mortgage. Two brokers told me flat out that a cash out mortgage couldn't be done as it would be irresponsible lending (on the basis that I was putting my home at risk of repossession if I didn't pay the mortgage).

HSBC will do cash out mortgages (in theory). I applied for a mortgage for 'home improvements' [with a quote for work I was planning on doing but that probably wasn't the most competitive quote for the work and that didn't consider that I could do a lot of it myself]. They asked a load of extra underwriting questions which I thought went fine but then they rejected the application for reasons unknown (they suggested credit file - but my history is fine so not sure what the actual issue was). One broker suggested they may have rejected it because they were scared it would have been viewed as miss-selling as I didn't 'need' a mortgage. Maybe they thought I was lying about my expenses or getting the mortgage for a massive drug habit?

I then found a broker who was more positive, but after a couple of false starts all she could recommend was a high rate (I think 6.4%) mortgage at one of those godawful secured loan 'consolidate your debts into one manageable payment' semi-predatory outfits. I was considering getting that on the basis that six months later I could have remortgaged to a more reasonable rate (this was when the advertised high st rate were around 2%). But there was no guarantee I'd get a decent rate as the desperation-lender would show on my file so it could be viewed as if I'd had a massive debt consolidation loan, and I couldn't stomach giving that sort of place any of my money.

The part I found most frustrating was when I was speaking to people about my investments, (to demonstrate that I was a responsible sort and that I had ability to cover the mortgage I was asking for so they should just chill the fuck out) they'd act like I told them that I had magic beans or lottery tickets. Yes there are risks associated with any investments but come on. Obviously no lender is obliged to give me a mortgage, so they are entitled to reject me for any reason they want; but I could only see how low risk my position was compared to someone whose only asset was a 10% deposit and the expectation of future income.

For context: salary is £70k, house worth £150k and I was asking to borrow between £50k and £75k. All the calculators suggested I could borrow around £250k for a new house purchase. Savings rate was around 55% and stache was about £75k.

Leveraging at 6% is a different game to leveraging at 2%. I think I'd have done the same if I was you Cerat0n1a. I ended up with a mortgage free house because I needed to move across the country faster than I could sell my old place so cash (plus some unsecured borrowing) was the way forward. If I'd have known what I know now I might have tried harder to either get a second mortgage or speed up the sale of my old place.

Your eco self-build sounds an amazing idea. I'd lend on that if I was a bank. But if a bank thought they could force you into a more expensive self build mortgage they'd probably try that.

[cerat0n1a]

Interesting - thanks for that, useful info. Sounds like blind application of rules without much consideration for situations outside the norm.

I'd be trying to borrow money with a mortgage on the paid off property we currently live in (£750k?) and using that to part-fund the self-build. The mortgage would be about 1.5 my income, well under a quarter of the value of the property with the mortgage. I'd do it that way because most of my 'stache is in ISAs or pensions where I don't want to/can't access it. The actual plot is for sale now and we could raise cash to buy it, but not enough to actually do the build as well without touching ISAs.

Could simply wait for youngest to go to university and sell up the main property and live in a caravan/rented accomodation while the build takes place, or do it more slowly, keep working and pay for materials/work out of income. My wife is quite gung ho about the project, but I think we need to wait for youngest son to have actually graduated and have a properly empty nest before permanently downsizing, which would be ~5 years away.

[Playing with Fire UK]

Yep, that's exactly it. They've been bitten by their wildly irresponsible lending in the past so are addressing this not by thinking more but by thinking less. All informed by a desire to not get caught breaking rules or fined  rather than a desire to lend responsibly. I recall Santander might have been an option for my situation but there wasn't enough equity in my house, you could try that - the website for intermediaries was helpful.

Can't advise on the son but will say don't plan to live in a caravan if you think the build will take 12 months and you can tolerate a caravan for up to 12 months. My much smaller projects always overrun and as the work gets more stressful my ability to live in a testing situation decreases!

And put out a request for labour if you do go ahead - I'm nearby to you and would love to check it out!

[AnnaGrowsAMustache]

NZ does - 65. You can only get your money out earlier for specific purposes: the purchase of a first house that you will actually be residing in, extreme financial hardship or serious illness.

Would having no income count as "extreme financial hardship"?

No, because we have unemployment or solo parent benefits that anyone can access. I know that some folk got their money out after the Christchurch earthquake, when the city was destroyed, but I think it's really meant for the kind of financial screw up that leads to bankruptcy etc. Possibly to prevent a mortgage default on a family home? Things like that.