What will the revised normal minimum pension age mean for your planned retirement date? Now’s the time to start planning.
The normal minimum pension age (NMPA) rises from 55 to 57 years old in April 2028.
It’s not the big leap we saw in 2010, when it rose from 50 to 55, and there are also seven years to prepare.
But even so, with no phased introduction, this could still be a shock for savers who are in the final stages of retirement planning. To bridge any potential gaps, it’s important to make plans now.
Who does this affect?
In general, it affects anyone born after April 5 1973 – those who turn 55 on April 6 2028, when the new NMPA is introduced – although there are some exemptions, such as people working for the emergency services.
Savers born between April 1971 and April 1973 have a small window of opportunity to take benefits before the cut-off but only if they access their pension during this period. If not, they can’t do so until they turn 57.
So, there’s the chance these changes could prove to be an extra headache. If you reach 55 ahead of the deadline date and start taking benefits under a phased drawdown, you might then have to stop again if you’re still below the minimum age in April 2028.
Can you avoid this?
You can if you’re in a scheme where the pension age is protected by what’s known as “unqualified right”. It allows you to claim after the age of 55, even once you’ve reached the cut-off date.
You’re also allowed to transfer your pension into one of these eligible schemes and benefit from the different age rules.
However, there are a couple of caveats to this: the “unqualified right” to the pension benefits must have been in place from February 11 2021, and savers must also join these schemes by April 5 2023.
But think before you jump. The reality is most self-invested personal pensions and personal providers are unlikely to have protected pension ages – most will instead follow the NMPA.
As a result, your choice of what to go for is likely to be limited. It means you need to think carefully about going down the transfer route.
In addition, you also need to be mindful of any inheritance tax complications that could crop up because of transferring your pension.
If transfer isn’t an option, there are other avenues available. If you want to retire at 55, there may be alternatives to tapping into your pension early that are more tax-efficient.
For example, you could bridge the two-year gap by making use of other collective investment schemes, bonds, or individual savings accounts you’ve paid into, that give you income without touching your pension.
This has another potential advantage, as they can help reduce your inheritance tax liabilities.
The other crucial point to consider is whether you can hold off. While retiring two years earlier can be an attractive option, the longer the pension remains invested, the more capital you can accumulate.
Essentially, there are four things you need to look at before April 2028:
- Check your pension schemes to find out if your retirement age is protected.
- Find out if there are schemes you can transfer into and if the minimum age is protected by unqualified right.
- List your other non-pension savings which can help bridge a gap.
- Finally, ask yourself if you need to retire at 55 and compare that to any extra financial benefit in holding off for another two years.
Whatever your decision, and whatever works best for you, taking impartial financial advice on the next steps is the best move.
Martyn Paterson is a chartered financial planner at Aberdeen-based AAB Wealth.