How the rise in minimum pension age could affect your retirement plans

Back in 2014, the Government announced a rise to the minimum retirement age. Under current rules, funds can be accessed from 55, but this is due to increase to 57 from 2028. The change could make a huge difference to those planning their retirement. So, too, could a proposal in the recently released draft legislation, allowing retirees to retain the current minimum age in some circumstances.

How the rise in minimum pension age could affect your retirement plans
Nigel Barthorp

Nigel Barthorp

Registered Adviser and Partner

And yet, despite the implications of these changes, recent research suggests that nearly 7 in 10 UK adults remain unaware of the age rise.

What are the changes? When do they come into force? And what do they mean for your retirement plans?

Keep reading to find out.

A rise to the minimum retirement age “reflects increases in longevity” 

The latest Office for National Statistics (ONS) figures on UK life expectancy at birth confirm a continuing rise. As we all live longer, we might be expected to work into older age, but could also spend more time in retirement. 

The Government hopes that increasing the normal minimum pension age will encourage individuals to save longer for their retirement, helping to ensure greater financial security in later life.

A rise to 57 also keeps the minimum age in line with the State Pension Age, which will rise to 67 in 2028. A 10-year gap limits the likelihood that those who withdraw retirement income early will run out before they can access their State Pension. 

Retirement at age 55 may still be allowed in some circumstances

Comparatively few retirees opt to take funds at 55, but some schemes’ rules may already state that funds can be accessed from the current minimum age. The scheme rules, in this case, will supersede the Government change, allowing continued pension access from 55. 

Not only that, but the draft legislation allows a two-year window for retirees to switch into such a scheme. 

Transferring before 5 April 2023 would allow an individual to retire at 55, even if they will not reach 55 until after 2028.

Sir Steve Webb, a former pensions minister, has said of the proposed changes: “As a first step, pension savers should find out where their own scheme stands. If their scheme’s access age will rise to 57, they may wish to review where they hold their pension savings.”

The choice to take a pension as early as possible, though, may not be the right one.

Working for longer could mean a bigger retirement fund 

Those born after 1972 – and who intended to take retirement from the minimum age of 55 – may need to work for longer. The extra two years could have a positive impact on an individual’s pension funds.  Being invested for longer means:

  • An increased number of contributions
  • The potential for greater investment returns
  • The continued benefits of compound growth. 

For an individual whose retirement is still many years away, the minimum pension rise should make little difference.

A long-term retirement plan will take into account all income streams and include contingencies for future legislative change.

Whatever option an individual is considering, financial advice provides the best chance of picking the correct, and the most tax-efficient, option for them. 

Get in touch

Working for two years longer than planned might seem like a huge financial decision but so, too, is changing your pension schemes to retire earlier than the new minimum retirement age.

Retirement decisions you make now could have ramifications for the rest of your life and are not to be taken lightly.

If you are concerned about what the draft legislation means for you and your retirement plans, get in touch now. Email info@erminfosse.co.uk to find out how we can help.

Please note

A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

This article is distributed for information purposes and should not be considered investment advice or an offer of any security for sale. This article contains the opinions of the author but not necessarily Ermin Fosse and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable but is not guaranteed. Errors and omissions excepted.

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Ermin Fosse Financial Management LLP is authorised and regulated by the Financial Conduct Authority Financial Services Register No: 197438