The minimum age to drawdown a personal pension in the UK is increasing to 57 on 6 April 2028. Right now, UK pension savers can access their personal pensions from aged 55 and this is consistent across defined contribution schemes, workplace scheme and private pensions. The decision to increase the minimum age to access a personal pension, also called the Normal Minimum Pension Age (NMPA) was based on increasing life expectancies and to keep this at ten years prior to State Pension Age.
The Government is now consulting on the best way to manage this change and this has led to calls from the insurance trade body, The Association of British Insurers (ABI) for a simpler approach. The Government proposal sets out to give those with a defined contribution pension ‘protected’ status, meaning they can still access their pension at 55. Protected status under the consultation includes public service pension schemes and all UK registered pensions schemes where a protected pension age is held.
The ABI argues that varying ages to access different pensions will cause more confusion in an already ‘complicated UK pension system’ and that this may skew pension savers and advisers’ decision making. The insurance trade body states that it is not often apparent if a pension pot has a protected status or not and that pension scheme rules, and wording could be ambiguous on this point. This will make it difficult for pension savers and financial advisers to make clear decisions and recommendations. Pension savers may base decisions about their pension and retirement on the single issue of drawing down funds aged 55, for example, transferring funds to a protected scheme or opting out of workplace schemes and losing employer contributions as a result. These may solve an immediate problem but may not present the best financial outcome for the pension saver.
The last time the Government increased the NMPA was in 2010, rising from 50 to 55. Then, everyone’s minimum age changed except for a few limited cases, based on the pension saver’s employment, such as public and uniformed service workers.
Yvonne Braun, Director of Long-Term Savings Policy at the Association of British Insurers said:
“People are living and working for longer so it is right the minimum age you can access your pension will rise to 57 in 7 years’ time, in step with the state pension age rising to 67. Unfortunately, the Government’s proposed implementation maximises the complexity of this change and would create enormous confusion for pension savers.
“Millions would still be able to access their pension at age 55, making the change pointless. Most savers will also have multiple pots at different ages, complicating their retirement planning. The ability to access a protected pension age of 55 may drive advisers to recommend switching to their clients, creating arbitrary market distortions. Savers may also leave employer schemes with a Normal Minimum Pension Age of 57 to access their pension earlier elsewhere, losing the employer contribution.
“We urge the Government to rethink their approach and make it much simpler for consumers. Being able to access their pension at 57 from 2028 for the vast majority of people is clear, reduces complexity and poor outcomes, and simplifies planning for retirement.”
Jon Greer, head of retirement policy at Quilter:
“We support the ABI’s stance for greater simplicity in the uplift of the Normal Minimum Pension Age. If the government is certain it wants to proceed down the road of increasing the NMPA, then it would be better just to move everyone to 57 and do away with any proposed transitional protections. This will make the change easier to understand and will prevent introducing damaging and unnecessary complexity into important areas of pension policy, such as small pot consolidation; the pensions dashboards and simpler annual statements.
“The Government has given significant notice of the change, allowing people to plan accordingly without securing a protected pension age. At the point the legislation comes in people will have six years to adjust any plans they may have had and for the overwhelming majority, taking their pension fund at the earliest age possible will not be in their best interest. After all the purpose of pension saving is to provide money for later life.”
The change in NMPA affects those aged 48 and under saving into a pension. Those still planning to drawdown their pension at 55 will need to find alternative sources of income to bridge the two-year gap. This could include using investments within an ISA wrapper if your savings and investment income is over the personal savings allowance limit. Borrowing money with a lifetime mortgage, a type of equity release, will mean you will incur interest costs and if you want to pay this off either from the outset or later you must check your lifetime mortgage lender will accept this. Other less popular choices may include downsizing and using some capital for the two years or continuing to work for longer than you had planned.
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