Retirement Income  

What the change to minimum pension age means for clients

  • Explain how the pension age will change
  • Explain what the pension age change will mean for savers
  • Explain how scams can be avoided
CPD
Approx.30min
What the change to minimum pension age means for clients
 Credit: Kaboompics via Pexels

The government recently confirmed it would press ahead with changes to the normal minimum pension age, with it rising by two years from 55 to 57.

This change has long been trailed and was first floated by the coalition government in 2014 during the period of huge pension upheaval that was pension freedoms.

The idea behind it was to keep a proportional gap between the state pension and the age you could access private pension savings.

It was decided that 10 years was an appropriate gap and with state pension increases on the cards too, it was inevitable the government would eventually confirm their plans to raise the normal minimum pension age in line with it. 

However, it is this sort of tinkering that which exacerbates the complexity that is already baked into pensions and retirement planning.

Indeed, it is also likely to make very little difference to consumer behaviour.

Changing the age people can touch their retirement savings by two years is not going to prevent people from taking the cash as soon as they can, particularly given 55 per cent of pension plans accessed for the first time are withdrawn fully overall, according to the FCA’s latest retirement income data.

Drilling down into the data further and we find that 75 per cent of those pension pots that were fully withdrawn in one go is done by people aged 55-64. 

However, while overall consumer behaviour may not be altered, this does still impact clients and as such both they and advisers need to sit up and take note, and ensure they don’t get unnecessarily caught out.

Normal pension age

The normal minimum pension age is the minimum age at which most pension savers can access their pensions without incurring a tax charge, unless they are taking their pension due to ill-health.

The age is currently 55 but the consultation published earlier this month confirmed the government’s intention to increase it to 57 on 6 April 2028. 

It should be noted, however, that the increase to age 57 will not apply to those who are members of the firefighters, police and armed forces public service pension schemes.

The government cited increases in longevity and changing expectations of how long we will remain in work and in retirement as reasons for the change, saying raising the age would encourage individuals to save longer for their retirement.

As the stats previously mentioned show, for anyone claiming this change is necessary to ensure people don’t run out of money in retirement are overstating its influence. 

We should instead be arguing that a greater emphasis needs to be placed on saving for retirement at an earlier age to avoid situations where we need to raise the normal minimum pension age and ensure people take longer to save.