In response to a question from Labour MP for East Ham, Stephen Timms, the Government recently confirmed its plans to raise the age at which individuals are allowed to access their private pensions from the current age 55 to 57 in 2028.
So, what are the implications of this planned change for private pensions holders?
To date, the Government has released no further information on how these changes will be implemented, stating only that they will legislate ‘in due course’. However, experts are envisaging one of two options:
The change is introduced from a fixed date, perhaps the start of the tax year: 6 April 2028
If this happens, then those who have their 48th birthday before 6 April 2021 will still be able to access their pension from age 55. Those born a day later will have to wait another two years before they can draw down income from their pension.
The change is phased in
The minimum age will gradually increase a month at a time from age 55 to 57. This avoids the ‘cliff edge’ of the previous scenario, but is more complicated and complex to communicate to pensions savers.
Since April 2015, savers with defined contribution (DC) pension schemes have been given greater access to their savings from the age of 55. The new changes will not affect these rules; the only thing that will change is the age at which your ‘pot’ can be accessed. You will still be able to take up to 25% of your pension savings as a tax-free lump sum and have the same options with regard to the remainder. However, from 2028, you simply won’t be able to do any of these things until you’re at least 57 years old.
The changes are meant to act as a safety valve in the pensions system. Since 2015, HMRC figures show that the total value of flexible withdrawals from pensions exceeded £37 billion. The Government is keen to ensure that, in the light of increased longevity, savers have enough money to last throughout their retirement. However, the lack of further detail about how the change will be effected makes it difficult for savers to understand how they will be impacted and to make plans accordingly.
Regardless of whether you’re planning to retire at 55, 60, 65 or beyond, you will understand the importance of ensuring you have sufficient money in your pension to live comfortably throughout your retirement. For help and advice regarding this latest Government change – or indeed any aspect of your personal pension planning – please do get in touch.
The above information is based on our understanding of current UK legislation law, tax law and HM Revenue and Customs practice (October 2020), all of which may be subject to change.
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