Claire Trott: Retirement age on the up (again)

Claire Trott assesses the impact of rising pension ages and outlines what advisers should be communicating to clients affected by the next shift

We have all known for a long time that the normal minimum pension age is going to rise again in 2028 – this time to 57.

Back in 2014 when it was announced, it seemed so far away and so much has happened since then that some will have forgotten this proposed two-year jump in the age at which you will be able to access your private pensions. At the time it was also proposed that the age would remain 10 years ahead of state pension age.

The reason we haven’t heard much about these changes over recent years is because it wasn’t and still hasn’t been put into legislation. Which means that the longer it was left the less likely some felt it would happen. The response to a written question in Parliament has confirmed that this is still the case.

Education, education, education

As we have seen with other changes made in the world of pensions, it isn’t always that easy to ensure that those who are impacted are correctly informed.

Take, for example, the issue with the increase in the state pension age of certain women. Many of them argue that they weren’t directly contacted and informed of what was going on. This change is much the same, and if you are engaged with your retirement planning and/or have a financial adviser it will already be part of your long-term plan, as would any changes to the state pension age. But if you are not, then this could easily pass you by unless you are an avid reader of the financial press.

I do not believe that we will be blindly walking into as the same situation as when the changes to state pension age were made, mainly because for many people retiring at the age of 55 was simply never an option in the first place. However, industry experts should do all we can to ensure that the facts are out there, and they are understood.

Planning opportunities and issues

This isn’t the first time we have seen a change in the normal minimum pension age. The last time we saw this was 2010 when the age at which you could access benefits was increased from 50 to 55.

This caused a rush for some to access their pensions, or at least their pension commencement lump sum if they were between 50 and 55. In many cases, it wasn’t really necessary and was driven of out fear that they might need it in the intervening years. Drawing out what could be a significant sum, bringing it into your estate as well as taking it out of a tax-privileged environment, just in case, could easily be avoided with a little preplanning.

This time the change isn’t five but two years so fewer people should be caught and therefore this rush could possibly be avoided.

Age 75 issues

Age 75 is another big milestone in a pension timeline. After the age of 75, you can’t make personal contributions, the taxation of money purchase pension death benefits changes dramatically, and the funds will all be tested or retested against the lifetime allowance.

Originally this was a 25-year period from when you could access your funds to when you were effectively forced into accessing them, which was then reduced to 20 years in 2010. Although the restrictions on how you can access your funds and when you can access them have been eased, there are still plenty of schemes that will force you to take benefits at age 75, so this cut off still stands.

We have seen no move to change this date, even though the reasoning for moving the normal minimum pension age was with regards to working longer and increased longevity. Both those arguments could be shown to apply to the age 75 rules we have to deal with.

Looking forward

It is clear that we will all be working and waiting longer to access our pensions, but retirement is more than just that one (or more) pension pot. Taking benefits from the right assets at the right time can be significantly more important than just having the biggest pension pot when you want to stop work.

Pensions are inheritance tax-friendly as so are unlikely to be the first asset you dip into even if you are in the lucky position to retire at a reasonable age. Planning and diversifying are key to a great retirement.

Claire Trott is head of pensions strategy at St. James’s Place Group