personal finance

Pension age: HM Treasury sets out plans for increasing the access age to 57 in 2028

Pension schemes and private retirement plans can be accessed from the age of 55 under the current rules, with retirees having a range of options for how they can access their savings. Analysing when one should take their pensions is an important part of careful financial planning for many as state pensions cannot be claimed until the age of 66.

HM Treasury will respond to the consultation in April 2021 and they are seeking answers to the following questions from affected stakeholders:

  • Are there any specific considerations that should be taken into ccount regarding the government’s proposed framework for the increase to the NMPA?
  • Are there any particular issues that the government should consider in the way NMPA is defined in pension scheme rules?
  • The government proposes that the protected pension age will apply to all the member’s benefits under the scheme (if the conditions for a protected pension age are met), not just those benefits built up before 2028. Are there any other alternative options or issues the government should consider around the treatment of accrued and future pension savings?
  • Are there any issues associated with schemes informing members who meet the conditions of their rights to a protected pension age?
  • Are there any circumstances why the increase in NMPA may impact on pension flexibility (which was introduced following the 2014 consultation on “Freedom and Choice in Pensions”)?
  • Are there any implications the government should consider by not requiring that all scheme benefits must be crystallised on the same day as a condition for a protected pension age?
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Tom Selby, a senior analyst at AJ Bell, commented on today’s announcement: “Millions of savers need to start preparing for a two-year increase in the age at which they can access their retirement pot from April 2028.

“The rise in the ‘normal minimum pension age’ from 55 to 57, which has been long trailed by the Government, is designed to reflect rising life expectancy, will maintain a 10-year gap between the point someone can access their private pension and the state pension age.

“Some people who have rights to access their pension before age 57 in their existing scheme will be able to retain their lower minimum pension age, with the practicalities of these measures subject to consultation.

“While this may come as a blow to some people, it is important to remember that just because you can access your pension doesn’t mean you should.

“It’s worth bearing in mind that someone in their mid-50s might have another 35 years or more to live.

“Anyone accessing their fund this early therefore needs to think carefully about the sustainability of any withdrawals and the impact they might have on their lifestyle as they grow older.”

Becky O’Connor, the Head of Pensions and Savings, interactive investor, was more critical in her response: “Moving the goal posts like this is likely to cause concern for those approaching retirement and make planning harder for them. It’s a curveball at a key life moment for those approaching 50 who will be hit by this.

“When it comes to retirement, there’s no such thing as ‘one size fits all’. People need some flexibility in when and how they access their pensions.

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“Life happens, ill health and caring needs can all get in the way of work sooner than expected. Some people could benefit from earlier pension access and it might be appropriate for them. Likewise, others are able to carry on working for much longer than the age at which they become entitled to access their pension, so even at 57, some might not need to tap into funds.

“The shifting of the minimum age for pension access underscores the benefits of using ISAs as well as pensions for retirement saving.

“People approaching their pension age also need more support in deciding what to do with their pension when they are able to access it. Experience so far suggests that people are more likely to squirrel away too much of their pension in cash rather than squander it on unnecessary spending. But too much cash, rather than carefully investing for growth, can also reduce the chance of someone’s pension lasting through retirement.

“The normal minimum pension age (NMPA) is intended to be ten years earlier than the state pension entitlement age, which will rise to 67 by 2028, so the proposal to raise it to 57 from 55 in 2028 is aligned to that aim. However the consultation suggests the Government won’t make the link automatic, which means the NMPA is likely to be reviewed again when the state pension age is set to rise to 68, expected between 2037 and 2039.

“Leaving the door open to pension schemes to implement this change sooner is likely to cause confusion among both providers and pension savers.”

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