Pension Freedoms were introduced in 2015 to give people over the age of 55 greater flexibility when drawing their retirement income. However, the minimum pension age is set to rise from 55 to 57 in 2028, bringing with it a range of challenges for pension savers.
Although this change was first announced in 2014, recent research from Aegon suggests that 70% of UK adults are still unaware that this will affect them. This means that they are not only unaware of the change itself, but also the impact it could have on their finances.
If you were planning on retiring at age 55, failing to plan for this two-year delay could reduce the financial freedom you have later in life.
The change might mean you have to work for longer than you had hoped or postpone large-scale retirement plans like world travel.
Keep reading to find out how this change might affect you and what can you do about it.
What is the minimum pension age rise?
The change to the minimum pension age means that the earliest you will be able to access your private pension will rise from age 55 to 57, from 2028.
If you have no plans to retire early, the change won’t impact you. This could be the case for the majority of retirees. Unbiased report that the average age of retirement in 2019 was 65 for men and 64 for women.
The change to the minimum age will coincide with a rise in the State Pension Age from 66 to 67.
While research has found that adults have a good understanding of the current normal minimum pension age, just 68% said they knew that the minimum pension age was increasing. Of those surveyed who were between 18 and 34 years old, 83% were entirely unaware of the change.
How does it affect my plans?
Due to take effect from 6 April 2028, the change in minimum retirement age will affect all workers aged 48 and under.
As the age rise is expected to be implemented in a single step, the impact it has will largely depend on when you were born, and when you would have hit the previous minimum age of 55.
If you are considering early retirement, it is important to plan for the upcoming change.
If you were born before 1971, then this change will likely have no real impact. By the time the change has been implemented, you will already be 57. You might even have accessed your pension already, under the old rules, at age 55.
If you were born between April 1971 and April 1973, you will have two options. These are:
- Access your pension between the day you turn 55 and the 6 April 2028
- Leave your pension untouched and wait until you turn 57 to access it.
If you were born after 6 April 1973, you may have to plan to work for longer. While a two-year extension to your working life might not be ideal, it does mean your pension pot will grow by a further two years of contributions. Delaying your retirement also potentially reduces the number of years your pot will need to last.
The change could also mean a two-year delay to your retirement plans, postponing foreign holidays or house renovations, for example.
If you aren’t planning on retiring early, this change is unlikely to affect you. If you were thinking about accessing funds early, you’ll need to think about the impact this could have on your retirement. This might include the tax implications, a limit on the pension contributions you can make due to the Money Purchase Annual Allowance, and the need to budget for an extra 10 years or more.
Taking pension funds is a big decision, and accessing your money just because you can, might not be the best choice. We are here to help, so get in touch before you make any potentially irreversible decisions, and ones with far-reaching consequences.
You may keep the right to retire at 55
Under the recent proposals, adult workers already in a scheme with an “unqualified right” to take pension benefits from age 55 will be allowed to keep this. As will any new members that join such a scheme before 5 April 2023.
This effectively creates a two-year window in which you could transfer your pension to keep the minimum age of 55. Doing so is a big decision, so again, speak to us and we can help decide if it’s the right option for you.
Transferring from an existing scheme to a new scheme without an unqualified right to take benefits from age 55 will also mean you will have to wait until age 57. This might be avoidable if your transfer is part of a block transfer, where two or more members of the same scheme transfer at the same time.
Get in touch
We can help you decide if and how the rising minimum pension age impacts you. If you are worried about the change or you would like to discuss any aspect of your long-term retirement plans, get in touch. Email firstname.lastname@example.org or call 0800 0787 182.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The value of your investment (and any income from them) can go down as well as up, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances. Levels, bases of and reliefs from taxation may change in subsequent Finance Acts.