16 Oct Pension age rises
You might have missed this, but the minimum age at which you can access your pension benefits is rising to age 57. The government has now confirmed that the minimum age will increase to 57 in 2028.
This shouldn’t really be a surprise as the plan to increase the earliest age when benefits can be accessed from a pension scheme was first discussed in 2014. Given the defined contribution pension benefit freedoms that have been in place since April 2015 for anyone who is aged 55 or over, it was only a matter of time before this age was increased.
This age increase is being brought in to reflect the fact that we are all living longer, the government is trying to encourage people to work longer and to try and ensure that pensions savings last. You could argue that for the last two reasons in particular, age 57 isn’t old enough and if you want pension savings to last you need to not allow quite so much flexibility. However, the flexibility appears, at least for now, to be staying but the age at which you can access your benefits is definitely increasing.
The age increase is in line with the state pension age increase to age 67 in 2028 and maintains the ability to take benefits no sooner than 10 years before state pension age. It’s also therefore likely to increase further as the state pension age increases – there’s already scope in current law to increase the state pension to age 68, and this might be changed or brought forward as the state pension is reviewed in the future.
So how might these changes affect us?
It’s important to appreciate that this isn’t a change in how benefits can be taken, so the flexibility that’s existed since April 2015 won’t change. If you’d like a reminder of how benefits from defined contribution pensions can be taken please refer to our ‘Guide to Pensions’
However, you might be affected if you’re aiming to retire or use some or all of your pension funds at age 55. What isn’t currently clear is how the age increase will be implemented. If the change is applied on the 6th April 2028 and you were born after 5th April 1973 you won’t be able to access your pensions for another two years but if you were born before 5th April 1973 then you should still be able to take benefits at age 55. What also isn’t clear is if you fall into the second category and choose to wait, do you have to wait until you are aged 57?
Alternatively, the government might use a different date or use a phased approach which we’ve already seen applied to the state pension age increases. For example, the increase in age from 55 to 57 could be brought in a month at a time based on an individual’s date of birth. This might herald unnecessary complexity but might be fairer for people who are close to age 55 at the date of change.
From a planning perspective given the implementation has not been clarified, it’s difficult to be precise but if you’re planning on accessing all or some of your pension benefits at age 55 and you’re not actually 55 until 2028 or after you might wish to alter your plans now and aim for age 57. At least this way you’ve got some time to adjust and if the change is implemented in your favour then it’s a bonus rather than a problem.
It’s unlikely that many people are planning on retiring in their mid-50s but some might be earmarking some pension benefits for a specific need – paying a lump sum off their mortgage, their children’s wedding costs or a milestone holiday. With the changes coming into force, these plans might have to be delayed or alternative sources of funds used.
Hopefully full details will be published in due course and this will provide clarity, so that if plans do need be changed, they can be. In the meantime, for those of us who have not yet reached our late 40s we need to get used to the idea that access to our pension schemes may be later than we first thought.
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