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One hat or two?

It's quite common for someone to want to reduce their hours and pay when they are near retirement, and taking the pension early to fill the income gap might seem like a good idea. In fact, it's not allowed. If you want to take your pension benefits from an employer's scheme, you have to retire, and that means stopping being an employee.

A recent court case looked at the situation where a executive director stopped working full-time, and became an unpaid non-executive. His experience was still available to the board of his company, but he didn't get paid. Not surprisingly, he took his pension benefits. The Revenue argued that this was against the rules, and a number of nasty tax consequences could follow.

The House of Lords decided that he had previously had two roles - director (unpaid) and employee (paid). He had retired from one of these jobs - the one which had generated the pension entitlement. The fact that he kept the other one did not mean he was barred from taking his pension.

This is an important decision, both for people who have fallen foul of the Revenue's view in the past, and for people who want to take a similar "semi-retirement" in the future. It's important that you need the two jobs before this approach works - if you are not a director but only an employee, you would have to retire completely to take your benefits.