With life expectancies rising, and other pressures on the UK State Pension system, new rules are planned to update private and workplace pensions. Huw Wedlock, Director, explains the relevance of the changes, and how they may impact your own retirement plans.
If you have a private or workplace pension, then the age at which you can access your funds can significantly influence your retirement plans. Since 2010, it’s been possible to unlock your pension from age 55 but, from 6 April 2028, this threshold is due to rise to 57.
The designated ‘normal minimum pension age’ or NMPA is an important factor because it dictates the age at which you can access your pension fund without incurring taxes or charges. Some pension schemes do specify a particular age at which you can access your funds, so if yours includes a reference to a particular age you may not need to be overly concerned. However, many schemes simply make reference to the government’s threshold, the NPMA, and if this is the case you may need to consider your options.
There is a possible loophole; if you join or transfer to a pension scheme before 5 April 2023 which offers access at 55, you’ll be able to take advantage of the old rule – even if you don’t reach 55 until after 2028. There are complexities though, and in some circumstances a transfer to a new scheme could be disadvantageous.
The change itself isn’t without precedence; in 2010 the NMPA increased from 50 to 55. The government has also suggested that it plans to ‘underpin’ the minimum age for private or workplace pensions to 10 years below State Pension age, so more changes are likely. In fact, additional increases to the age at which individuals can begin to drawdown from their pension funds are inevitable, particularly given the rise in overall life expectancy. This particular change also reflects the fact that the age for eligibility of payment of a UK State Pension is increasing too.
In addition to this, the lifetime allowance (the total amount you can build up in all your pension savings without incurring a tax charge) has been reduced steadily over the last 10 years and is currently frozen at £1.073m until April 2026. This could also adversely affect the amount of income you have in retirement.
With all this in mind it’s more important than ever to plan financially for retirement, particularly if you want to stop or scale back any formal employment earlier than, for example, the UK State Pension age. It’s also useful to consider the impact of accessing your pension funds early; ultimately, it’s likely to leave you less in your ‘pot’ for later life. This is an especially important consideration for women who typically retire with less income; notable particularly given that the UK gender pension gap is as high as 57% for some women depending on age and region.