PENSION AGE INCREASE

It is important to save for the future and to engage with retirement provisions. However, there are many more things to be aware of when it comes to pensions, than simply saving as much as you can afford to.

It’s just as important to keep track of the ever-shifting pension rules. The pension freedoms introduced in 2014 allowed individuals unlimited access to every penny of their retirement savings, for the first time.

While restrictions on how much could be withdrawn from a pension fund were removed, rules remained on when you can start taking money out. A ‘normal minimum pension age’ is set by the government to ensure that pension savings are used as intended – for retirement.

At the moment the age where you can access your pension savings is 55. But from 2028 it will rise to 57. The increase is in response to the fact that most people continue working and saving beyond this age and reflects increases in the state pension age (more on this later).

For some it means they will need to work for longer than they would have preferred. For others it might mean delaying a dream holiday or perhaps helping out younger family members.

Awareness, it seems, is an issue.

A recent study[1] has highlighted a significant lack of awareness with 7 in 10 adults (68%) said they did not know of the rule change. Awareness was even less amongst younger age groups with 83% of 18-34 year-olds oblivious to it. The rule change is not completely cut and dry, however. There are some exceptions.

Some pension schemes have it written into their rules that savers can access their pensions from 55, and this will apply even after 2028.

Savers can also keep the right to withdraw their savings at 55 if they transfer to a scheme that has the lower age stated in its rules by April 5, 2023. This will help to avoid having pension schemes with one set of rules for some savers and a second set of rules with a different retirement age for others.

The rule change on when you can access your pension will not apply to members of the police,armed forces and firefighters who will be allowed to keep their lower minimum pension ages. Firefighters, for example, are allowed to take their pension at 50 with 25 years’ service. The state pension age is the same whatever your job.

What’s important to remember, is that protecting the age at which you can reach your pension isn’t always the priority, depending on the individual circumstances.

Some 44% of adults aged 35-54, the first age group who’ll be hit by the proposed changes, admitted that they would be put off transferring to a better value scheme if doing so meant they lost their right to take their pension from age 55.

But moving to a new scheme could boost returns if it came with lower charges and better investment options.

Getting the right advice is crucial to ensuring your savings are in the best place for your own personal circumstances. A financial adviser can not only help you invest money wisely for the future, but also to plan ahead for known changes.

And remember, it’s not just private pensions that are getting further away. The State pension age is also on the rise. Since 6th October 2020, the State Pension age became 66 for men and women in the UK. A further increase to age 67 is due to take place between 2026 and 2028. This will be phased in.

You can check your State Pension age online (https://www.gov.uk/state-pension-age) and even obtain a forecast of your State Pension entitlement (https://www.gov.uk/check-state-pension).

Source:

[1] Aegon Study, July 2021