Savers could be forced to wait until aged 57 to access their pension pots under new plans apparently drawn up by the Treasury, but experts have warned against it.
Chancellor of the exchequer Rishi Sunak has come under pressure to announce plans in the March Budget to raise the minimum age at which people can access their pensions by two years, following concerns savers have been cashing in their pension too soon.
According to media reports, following lobbying by the Association of British Insurers (ABI), the chancellor is poised to push forward the timetable to increase the access age of private pensions.
It was already due to rise to 57 when the state pension age reaches 67 in 2028 under plans by former chancellor George Osborne.
Last year (September 2019), the ABI called for the government to increase the pensions freedoms age to 57 to protect consumers from exhausting their pots too quickly.
Introduced in April 2015, the pension freedom rules opened up the way savers can access their pension cash, allowing them unfettered access from the age of 55.
But Sir Steve Webb, partner at pension consultants LCP, has warned these plans could cause “real problems”.
Sir Steve said: “Ministers should not rush to accelerate that timetable. People need time to plan their finances and a sudden change could cause real problems.
“There is very little evidence that people are using the new pension freedoms to recklessly blow their life savings at 55.”
He added that a bigger risk to savers was accessing tax-free cash early on in retirement and then putting the remaining sum in a low return cash account.
Sir Steve added: “A more creative approach might be to explore whether individuals should be able to access their tax-free cash at 55 whilst leaving the rest in their pension if they wish to do so”.
But Alistair McQueen, head of savings and retirement at Aviva said raising the age to 57 was the right policy.
Taking to twitter, he said: “Let’s maintain a ten-year gap between the pension-freedom age and the state pension age. The more we delay, the more painful the eventual increase will be.”
Gareth James, head of technical at AJ Bell, showed support for the age increase although he warned this needed to be carefully planned to avoid unintended consequences.
Mr James tweeted: “Worth remembering that the last increase in minimum pension age was the single biggest factor in the 2012 explosion of pension scams linked to early access. The increase should happen, but implementation needs careful management.”
A Treasury spokesperson said: “The announcement of the minimum pension age rise to age 57 in 2014 set out the timetable for this change well in advance to enable people to make financial plans, and we will announce next steps in due course.”
Data published by HM Revenue & Customs last month (January 30) showed in total, almost £33bn has been withdrawn from pensions since the introduction of the pension freedoms in April 2015.