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The minimum age to start accessing private pensions will increase from 55 to 57 overnight on April 6, 2028.
This means that people aged between 40 and 50 should start planning ahead if they want to retire early or if they intend to use some of their pension savings to pay off debts such as mortgages or cover other important expenses.
It’s especially important to know the age rules on your work and other personal pensions, because some people will still be able to access their funds at age 55 depending on what they say.
Do you want to retire early? People between 40 and 50 years old should be aware of the change in age rules that will occur in 2028.
But you could accidentally lose this right if you roll a pension into a plan without this benefit. And there are other peculiarities of the new age rule which are explained below.
Financial experts also give advice on how savers should prepare over the next four years and options to close the savings gap for those determined to retire early.
How will the age change from 55 to 57 work?
Many people in their forties probably have no idea that the Government plans to increase the minimum retirement age to access personal and workplace retirement savings from age 55 in 2028. Here’s what you need to know…
– The ‘normal minimum retirement age’ (NMPA) will increase to 57 years on April 6, 2028. The change comes to keep it scheduled 10 years before the state pension age, which will increase from 66 to 67 years between April 2026 and April 2028.
– Some people with a “protected” age written into their pension scheme rules, perhaps simply one that specifies “55” rather than simply referring in general terms to the “normal minimum pension age”, will still be able to access your funds sooner.
There are also exceptions to the retirement age for people in certain employment schemes, such as the uniformed public services, and for people with terminal illnesses.
– Under the Government’s initial plans, people affected by the change who transfer to a scheme with a “protected” retirement age of 55 in April 2023 could gain access to their money at the lower age.
However, this loophole was closed after pensions experts warned it would cause confusion and risk savers being taken advantage of by fraudsters.
Therefore, the option to roll over a pension to continue benefiting from the 55-year threshold closed overnight in November 2021 (unless you were already in the middle of a rollover).
This means that you will only be able to keep the age 55 advantage if you were already a member of a plan that allowed it before November 4, 2021, and if this rule was already written into the plan rules before February 11, 2021.
– Anyone who wants to transfer their pensions should check the rules of the plans before doing so, in case they change from one that still allows withdrawals from age 55 to one that prohibits it from April 2028, and want to keep this advantage.
– In some cases, after a rollover, a new plan will allow you to keep the age 55 option on the funds you’ve moved, but your future contributions will be subject to the age 57 rule.
So if you are in a scheme with a protected pension age and then transfer, you could end up in your new scheme with two different minimum pension ages in separate buckets of your savings.
– There is another quirk of age that former Pensions Minister Steve Webb highlighted when responding to a reader in a recent This is Money column.
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 be allowed to access their pension at age 55 for a period, but will then be denied access again from April 6, 2028 until they turn 57.
“Suppose, for example, that you were born on April 5, 1973. In this case you will turn 55 on April 5, 2028 and will therefore be able to immediately access your pensions when you turn 55,” writes Webb.
“However, if you miss that day (perhaps because you’re busy celebrating your birthday), you’ll wake up the next morning to find that you won’t be able to touch your pensions for another two years.”
What should you do to plan ahead for the retirement age change?
Rachel Vahey, head of public policy at AJ Bell, suggests taking the following action.
Find out your plan’s retirement age rules
The first step is to consult with your pension plan. Some work and personal pensions will provide a protected age of 55, allowing you to withdraw money sooner even when the normal minimum pension age rises to 57.
Rachel Vahey: Remember, 55 is a young age to start dipping into savings
However, it is a complicated area, so it is best to consult with the pension plan itself.
Check the rules before transferring any pension
If you have a protected age of 55, be careful if you want to transfer your pension elsewhere.
Some pension providers will still protect you, but they don’t have to, so transferring to one that doesn’t will mean you lose protection and won’t be able to access your pension until you turn 57.
If this is something that is really important to you, be very careful when changing pension providers.
> Should you combine your pension funds? Read our guide
Review your savings and assets held outside of a pension
If your provider does not allow you to access your pension from age 55 but you need to access savings at that time, you will need to build up other savings and investments.
That might mean turning to other savings like Isas, for example, which you can withdraw at any time, usually without penalty.
Consider whether you need early access to pensions
Remember, 55 is a young age to start dipping into savings. You’re looking for your investments to provide you with funds throughout your retirement, and that could last another 30 years or more.
How do you close the two-year gap?
Carla Morris, wealth director at RBC Brewin Dolphin, offers the following advice.
Check your mortgages or loans
If you have any that need to be repaid using your tax-free lump sum when you’re 55, you should start talking to your lenders as soon as possible.
Discuss all the options available to you, including options to extend the term of the mortgage or loan. It is important that you know what refunds may be necessary.
Make other arrangements to cover university or school fees.
People who turn 55 when their children go to university may well have been thinking about using their tax-free cash to pay fees, or even to help pay school fees.
Carla Morris: If your provider has set a retirement age of 55, they may start changing the pension fund from higher to lower risk, known as lifestyle, too early.
If you find yourself in this position, be sure to make additional savings contributions to cover the costs. The sooner you start saving the better and using tax-efficient investments such as Isas will ensure returns are not subject to tax.
Check your pensions
Some pension providers offer lifestyle funds that move the pension from higher to lower risk over the years, especially as you approach retirement age.
If the provider has set a retirement age of 55, they may start to change the composition of the pension fund too early and you could lose some investment gains.
> How to prevent your pension from being a ‘lifestyle’
Consider whether 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 could be accessed from age 55 if the pension is not available, or even earlier if necessary, except for the Lifetime Isa which is access from 60 years old.
Plus, since income and growth are tax-free, they can be a great way to supplement income when you’re about to move into a higher tax bracket.
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