The minimum age at which you can access private pensions will increase overnight from 55 to 57 on April 6, 2028.
This means that people in their mid-to-late 40s and early 50s should start planning ahead if they want to retire early, or plan to use some of their retirement savings to pay off debts like mortgages or cover other important expenses .
It’s especially important to know the age rules for your work and other personal pensions because some people can still access their money at age 55 depending on what they say.
Would you like to retire earlier? People in their mid-to-late 40s and early 50s should be aware of the change in age rules that will occur in 2028
But you could accidentally lose this right if you transfer a pension to a scheme without this benefit. And there are more peculiarities of the new age rule that are explained below.
Financial experts also offer tips on how savers should prepare for the next four years, and options to close the savings gap for those determined to retire early.
How does the age change from 55 to 57 work?
Many people in their forties will probably have no idea that the government plans to raise the minimum retirement age for access to work and personal retirement savings from 55 in 2028. Here’s what you need to know…
– The ‘normal minimum retirement age’ (NMPA) will rise to 57 years on April 6, 2028. The change is taking place to keep it 10 years ahead of the state pension age, which will rise from 66 to 67 between April 2026 and April 2028.
– Some people with a ‘protected’ age included in the rules of their pension scheme, perhaps simply an age that specifies ’55’ rather than just referring in general terms to the ‘normal minimum retirement age’, will still be more likely to access can get their money’s worth.
There are also exceptions to the retirement age for people in certain work arrangements, such as the uniformed public services, and for people who are terminally ill.
– Under the government’s initial plans, people affected by the change who have moved to a scheme with a ‘protected’ retirement age of 55 by April 2023 would be able to access their money at the lower age.
However, this loophole was closed after pensions experts warned it would cause confusion and risk fraudsters exploiting savers.
The option to transfer a pension to still benefit from the age limit of 55 was therefore stopped overnight in November 2021 (unless you were already in the middle of a transfer).
This means that you will only retain the 55-year-old benefit if you were already a participant in a scheme that allowed this before November 4, 2021 and this rule was already included in the scheme’s regulations before February 11, 2021.
– Anyone who wants to move their pension must first check the rules of the scheme before doing so, in case you switch from a scheme where withdrawals are still possible from the age of 55 to a scheme where this is no longer possible from April 2028 and you want to keep this benefit.
– In some cases, a new arrangement may allow you to retain the 55 age option on the funds you moved after a transfer, but your future contributions will be subject to the 57 age rule.
So if you are in a scheme with a protected retirement age and later switch, you could end up in your new scheme with two different minimum retirement ages on separate segments of your savings.
– There is another age difference which was highlighted by former Pensions Secretary Steve Webb when he replied to a reader in a recent column for This is Money.
Webb explained the “very strange” pension rules for people born in the two-year period between April 6, 1971 and April 5, 1973.
They will have access to their pension at the age of 55, but from April 6, 2028 they will be denied access again until the age of 57.
“For example, suppose you were born on April 5, 1973. You will then reach the age of 55 on April 5, 2028 and you can therefore immediately claim your pension on your 55th birthday,” Webb writes.
‘But if you miss that day (perhaps because you’re busy celebrating your birthday), you wake up the next morning and find that you now won’t be able to get your pension for the next two years.’
What should you do to plan ahead for the change in retirement age?
Rachel Vahey, head of public policy at AJ Bell, suggests taking the following action.
Discover the retirement age rules of your scheme
The first step is to inquire with your pension plan. Some company and personal pensions provide a protected age of 55, allowing you to withdraw money earlier, even if the normal minimum retirement age rises to 57.
Rachel Vahey: Remember, 55 is a young age to start saving
However, it is a complicated matter, so it is best to ask the pension scheme itself.
Check the rules before moving your pension
Do you have a protected age of 55? Please pay attention if you want to transfer your pension pot elsewhere.
Some pension providers will continue to protect it, but that is not necessary. If you switch to a pension provider that does not do this, you will lose protection and you will not be able to access your pension until you turn 57.
If you find this really important, pay close attention when you change pension providers.
> Do you need to merge your pension pots? Read our guide
View your savings and assets outside your pension
If your provider does not give you access to your pension from the age of 55, but you do need access to savings at that time, you will need to build up other savings and investments.
That may mean relying on other savings, such as Isas, which you can withdraw at any time, usually without penalty.
Consider whether you need to access your pension earlier
Remember that 55 is a young age to start saving. You want your investments to provide you with money during your retirement, which could be another 30 years or more.
How do you bridge the two-year gap?
Carla Morris, wealth director at RBC Brewin Dolphin, gives the following tips.
Check your mortgages or loans
If you have something that needs to be paid back with your tax-free lump sum at age 55, you should talk to your lenders as soon as possible.
Discuss all the options you have, including the options for extending the term of the mortgage or loan. It is important that you know what repayments may need to be made.
Make other arrangements to cover college or university costs
People who turn 55 when their children go to college may have thought about using their tax-free money to pay for college, or even to help pay for college.
Carla Morris: If your pension provider has set a retirement age of 55, he or she may change the pension fund too early from a higher to a lower risk (also called lifestyling).
If you find yourself in this situation, make sure you make additional savings contributions to cover the costs. The sooner you start saving, the better. Using tax efficient investments such as Isas ensures returns are not taxed.
Check your pensions
Some pension providers offer lifestyle funds that shift the pension from higher to lower risk over the years, especially as you get closer to retirement age.
If the administrator has set a retirement age of 55, he or she may change the composition of the pension fund too early and you may miss out on part of the investment profit.
> This way you prevent your pension from becoming ‘lifestyled’
Consider whether you want to open or boost Isas
Although Isas do not benefit from tax relief on contributions, income and growth are tax-free.
Isas are also very flexible when it comes to withdrawals, so they can be accessed from the age of 55 if the pension is not available, or even earlier if necessary – with the exception of the Lifetime Isa, which can be accessed from the age of 60 years.
Because the income and growth are tax-free, they can also be a great way to supplement your income as you’re about to move into a higher tax bracket.
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