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

Saving at an earlier point in life will allow you to take a longer investment horizon to generate potentially better returns, so a better way of looking at it might be that you have two extra years of investing, rather than simply delaying that first step to saving for retirement.

Getting people to start saving earlier and at a material level is ultimately what will make the difference to the retirement savings in this country. 

Shades of WASPI 

As we have seen with the WASPI issue, communicating pension changes to people is very important, and not something we as an industry should rely solely on the government to do.

Instead we need to analyse what these changes will mean for clients, support them through any updates to their financial plan and ultimately provide sound advice based on the latest policy. 

However, unlike with the state pension where increases are phased in, this seemingly rudimental change has hidden complexity.

Anyone born before 6th April 1971 will be exempt from such changes as they will be able to still access their pensions at age 55.

But for those born after this date, it creates an element of confusion. Some clients will have been planning to retire at 55 and as such this will have derailed their plan somewhat.

Those born after 6th April 1973 are impacted in a fairly simple way – they can’t access their pension until they are now 57. 

Meanwhile there is the potential of a cohort caught in the middle where they will be able to access their pension at 55 prior to April 2028, before having to wait until they turn 57 to access any untouched pension funds after this date where they don’t qualify for protection.

It is with the transitional protection that the problems arise. Where a pension saver had an ‘unqualified right’ to access their pension savings at age 55, under the rules of the pension scheme as they stood at 11 February 2021, they will retain the normal minimum pension age of  55 for that scheme.

However, if they subsequently transfer those rights to another scheme, other than by a ‘block transfer’, the right to take benefits at age 55 will be lost. 

While not being one to shirk from a bit of complexity this will mean that we will have protected pension ages for those under age 50, certain people between 50 and 55 and now those between 55 and 57. Presumably we will have a further increase to 58 in the future to contend with too.

Changing advice requirements

While a number of clients will continue to cash in their whole pot at once when they reach 57, there is still a considerable cohort who do not do so, and this change has the potential to derail their retirement plans.