A recent report from the Government proposes an increase to the minimum pension access age from 55 to 57. This is likely to result in many people having to review their original retirement plans. Still, not everyone will be impacted, and careful planning could allow you to protect the lower access age. This blog aims to highlight some of the key issues you may need to consider to help keep your retirement plans on track.
When will the pension access age increase happen?
The increase is planned to commence on 6th April 2028; this means only people below 57 at that date are affected (anyone over 57 has access regardless, subject to their pension scheme rules). People below 57 will only be affected if their existing pension(s) don’t already give them an ‘unqualified right’ to take their pension at 55 or if they have an unqualified right in respect of a particular pension plan and they take an action that would cause them to lose this right.
Will your pension provider offer protection against the access age increase?
Many pension providers are cautious about confirming whether their pension contracts give an unqualified right for an individual to take their pension at 55 because the legislation doesn’t yet define what is meant by an unqualified right.
Most pension terms and conditions mention ‘age 55’ and/or refer to ‘normal minimum pension age’, but no one yet knows whether this will count as an unqualified right. Understandably, many providers want to see the finalised legislation before confirming one way or another.
Vanguard, one of the world’s largest asset managers and new entrant into the pensions market in the UK, has told us:
“We are currently reviewing the draft legislation that has been published, and we will add content to the Help section of our website over the course of the next few days”.
It also means any new pensions opened after April 2023 will not have this protection; for example, if you change jobs and join a new workplace pension, you will only be able to take benefits from that pension at age 57 from April 2028. You may, however, be able to transfer this to an existing pension that does allow access from age 55. This is likely to vary by provider and will require an individual assessment of your situation. A financial planner will help you navigate any changes required to ensure you make the most appropriate financial decisions.
What has changed since the original consultation paper?
The main change from the original consultation paper released in February 2021 is that the latest proposals have a built-in “loophole” for people to use. The Government had proposed allowing anyone to open a pension before April 2023, which, as of 11th February 2021, offered an unqualified right to access at age 55 to “lock-in” the age 55 protection:
“The Government will publish draft legislation to introduce a window to give individuals an opportunity to join pension schemes which offer a PPA (i.e. the scheme rules on 11th February 2021 already confer an unqualified right to take pension benefits below age 57, and they join that scheme by 5th April 2023).”
This means with careful planning; the increase should have little impact on anyone hoping to access their benefits from age 55.
What are the potential planning opportunities?
Although the proposals have not yet been finalised, the following provides some ideas that individuals may wish to discuss with their financial planner at their next annual review:
- Transfer to a new pension which, as of 11th February 2021, offered an unqualified right to access at age 55 now to lock in the age 55 protection with your chosen provider.
- Open a pension which, as of 11th February 2021, offered an unqualified right to access at age 55 now with a small amount even if you don’t have the funds to contribute to it yet fully. This will lock in the age 55 protection without needing to go through the administration later.
- Open a pension which, as of 11th February 2021, offered an unqualified right to access at age 55 for your child, which would lock in the same access age of 55 for them. Further increases are planned for the pension access age, and locking in this protection could make an even greater difference later on. Alternatively, it may be lost with new legislation. However, there are also many other benefits of gifting to children via pensions.
- Even if you are currently planning to retire after age 57, it may make sense to lock in the ability to take your pension benefits at 55 if your circumstances change.
And the following sets out some of the potential problems a financial planner could help you navigate, so you don’t lose out:
- Do your existing, or new pensions include an unqualified right to access at age 55 as not all will qualify?
- Before transferring any pension, it is important to check whether it has any other protections or guarantees which could be lost. This could include even earlier pension access ages, guaranteed annuity rates, guaranteed growth rates etc.
- If transferring to a new pension, particularly after April 2023, will you retain the protected retirement age? Previously there have been complex rules which can cause you to lose protection if care is not taken. However, these requirements may be relaxed.
- If you are above 55 but below 57 in April 2028, there will likely be some form of transitional protection, but currently, nothing has been set out. We will continue to review any new legislation and monitor the impact this will have on clients.
- This is not yet law and therefore can be subject to change.
There are several areas where we would recommend you seek financial advice to help you make the best decision regarding changes to the pension access age. It is always important and beneficial to discuss the above matters with an expert, and our team of financial planners can help you make the best decisions for your financial future. Get in touch today.
Source: Personal Investor Services at Vanguard