How will the increase in minimum pension age affect you?25 March 2021
We are all getting older, and more importantly living longer (on average). For those in reasonable health, non-smoker, living in a standard postcode (no additional risks) and with pension assets, we might find a man living on average to age 85/87 and a woman to age 87/90, if not longer.
This might mean that our pensions have to last longer than in the past, and this also applies to the State Pension, where the minimum age to draw this benefit has increased from age 65 (or lower) in the past to age 67 now.
To reflect this increased longevity further, from April 2028, the normal minimum age at which pension benefits can be drawn is expected to rise from 55 to 57. This is not a gradual increase in minimum pension age – it will take place overnight and once put into legislation, it will come into effect on 06 April 2028. The proposal is still at the consultation stage, although it has been the government's intention for quite some time and is likely to proceed as planned.
There is intended to be some protection to allow some individuals to draw pension benefits at the old minimum age of 55. However, this protection will not be widely available and may also be lost if a pension is transferred.
This is an important change that could have significant effects for many individuals, and we have provided below an outline of the anticipated rules.
Who will be affected?
As noted above, the normal minimum pension age will increase to age 57 on 06 April 2028. However, as with most pension details, there are some variants to consider.
- Individuals born before 06 April 1971 will not be affected and will still be allowed to access their pension at age 55.
- Individuals born after 05 April 1973 will only be able to access their pension benefits from age 57 under normal circumstances.
- Those born between 05 April 1971 and 05 April 1973 will have a period between their 55th birthday and 06 April 2028 during which they can draw benefits, before the minimum pension age is raised to 57.
- If pensions are not accessed during this period, these individuals will need to wait until their age of 57 to draw benefits.
Protected pension ages
Those with existing protected pension ages will not be affected. This would include as an example those who maintain occupation-related early retirement ages. In addition, it is intended that further protection will be available for those who maintain benefits within schemes that give members the unqualified right to take benefits at age 55, although this is to be finalised and ultimately will depend on the scheme rules.
Transferring out of a scheme
An individual transferring away from a scheme with a protected pension age would lose the right to take benefits at age 55. This will be an important point to consider and check before any individual transfers away are made.
It is intended that block transfers will allow a protected pension age to remain. A block transfer is where two or more members of a scheme transfer into the same receiving scheme at the same time.
As a first point, protected pension ages are the exception rather than the rule; however, it will continue to be vital to check for any protections on each of a client's pension arrangements before any changes are made.
As noted above, the change in minimum pension age is still at the consultation stage – however, we do anticipate that it will proceed to legislation. It is therefore important to ensure that client expectations are managed in terms of when they may be able to access their pension savings. The rise in minimum age could have a significant effect on retirement plans, particularly as it is intended to be immediately effective in April 2028, rather than phased to that date.
If you would like help and advice with your pension and retirement planning, please contact the Chapters Financial team.
No individual advice is included within this blog.
Keith Churchouse FPFS
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899