Under new rules coming in from 2028, some pension savers may have to wait an extra two years before being allowed to take money out of their pension. Whilst you might not be thinking about taking money out of your pension, it’s important to understand how the new rules might impact on you.
Currently the earliest age you’re permitted to take money out of a pension pot is generally 55. The only time it is possible to access pension benefits before minimum pension age is for individuals in ill-health (generally this rule only applies to occupational pensions), or if the person has a “protected pension age” or is in certain specified occupation. Apart from this, a payment out of a pension made before minimum pension age is an unauthorised payment and subject to hefty tax charges.
The Government has confirmed that the normal minimum pension age will rise to 57 in 2028. The change was first mentioned by the Govt in 2014 when the pension freedoms were announced to reflect the trends in longevity and to encourage individuals to remain in work while also helping to ensure pension savings provide for later life. However, the change to the rules were not put into legislation. It has recently been confirmed the change will definitely take place but it is not clear yet how the government is actually going to implement the changes or communicate the changes to pension savers.
Whether the change will be a ‘cliff edge’ one remains to be seen but this seems likely based on past changes to pension age. When the minimum pension age increased from 50 to 55 from 6 April 2010, a member had to take benefits before that date to avoid being affected by the change to 55, in other words if someone had placed funds into drawdown before 6 April 2010 they were still allowed to take a lifetime annuity after 6 April 2010, even if they were still under 55.
The change could happen on a specific date which is most likely to be at the beginning of the tax year i.e. 6/4/2028 – in which case anyone who has their 48th birthday before 6 April 2021 will still be able to access their pension from age 55, but anyone even a day younger, will have to wait another 2 years to start taking an income from their pension. Of course, the government could pick a different date later in 2028 to bring in the changes.
The change could be phased in i.e. similar to the gradual increase in state pension age. This could see the minimum age gradually increase a month at a time from age 55 to 57 with people currently in their late 40’s eligible to draw pensions from different ages based on their exact date of birth. This avoids a cliffedge but would of course be much more complex to communicate.
Finally, the other point that needs clarification is what would happen if someone reaches age 55 before the cut-off date, would they keep the right to access their pension earlier than age 57. For example if the changeover date is set as 6/4/2028, an individual born 5/4/1973 will reach age 55 just before the cut-off, could they access their pension that day, but if they don’t, will they need to wait until age 57?
I expect we will have to wait until a lot nearer the time to get any clarification on these points, but we will keep you posted when we know more.