The Treasury has confirmed that the minimum private pension age will increase from 55 to 57 on 6 April 2028. From that date, you will only be able take benefits from your pension savings if you are 57 or older. Until then the minimum age requirement is 55.
This means that people now in their late 40s, or younger, will now need to wait another two years before being able to access their private pensions.
The change will be especially important if you were born between 6 April 1971 and 5 April 1973. You will have a short window of time between your 55th birthday and 5 April 2028 in which to decide whether to take any of your pension savings or wait up to another two years when you are 57.
When George Osborne was the Chancellor he introduced the current pension freedom rules. This allows private individuals to access their private pension savings before state pension retirement age. At the time, he said that the minimum age from when an individual could draw their private pension would increase over time.
Traditionally, the private pension access age was set at 10 years behind the state pension age. State pension age is currently 65 but is rising to 66 in October 2020 and then to 67 between 2026 and 2028.
Despite the original announcement, there has been no provision made in legislation to implement this age increase. Some people thought that the proposal may have been dropped.
MP Stephen Timms, who heads the work and pensions select committee, asked about the government’s plans regarding the increase in parliament.
In a statement responding to Parliament John Glen, economic secretary to the Treasury, said: ‘In 2014 the government announced it would increase the minimum pension age to 57 from 2028, reflecting trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life’.
‘That announcement set out the timetable for this change well in advance to enable people to make financial plans and will be legislated for in due course.’
The increase applies to private pensions, including most workplace pensions, such as personal, auto-enrolment and stakeholder pensions where individuals and their employers contribute. These pension schemes are normally referred to as defined contribution schemes as their ultimate value is determined by how much is contributed and how much the underlying investments grow over the years.
Some pension schemes, e.g. defined benefit (final salary) schemes normally set their default retirement age much higher than the minimum age 55 mentioned above. However, the new age increase also applies to defined benefit schemes, where an individual’s pension is based on their final salary.
It is thought that 860,000 individuals currently (September 2020) aged between 46 and 47 will be hardest hit as they would turn 55 in 2028.
It is now important for the government and the pension’s industry make this change in the law clear to those individuals who are saving for retirement in pensions and are hope to draw their private pensions at age 55. We cannot afford a repeat of the government’s previous poor communication which left many women expecting to take their state pension at age 60 extended to age 65.
Currently, people can take some or all of the cash held in their private pension schemes at age 55, including taking 25% of their pension savings tax free.
The age at which an individual can take their state pension is a separate matter. This depending on when on personal was born. State pension age is currently set to increase to 67 for men and women by 2028, and then to 68 between 2044 and 2046.
The minimum age will therefore increase to 57 from 2028. Those now aged below their late 40s will now have to reconsider their retirement plans e.g. if they intended to use pension savings to clear a mortgage or take early retirement.
People may therefore consider using other investments and savings methods to accumulated sufficient funds to bridge their early private retirement between age 55 to age 57. They may consider using tax free ISAs or other savings and investments to fund this two-year extension period.