Earlier this month, the government confirmed it would be raising the minimum pension age in the UK from 55 to 57. The change will come into effect from April 2028.
The biggest impact will be felt by those due to retire in eight years’ time and it’s likely to mean a change to their retirement plans.
Keep reading to find out what the changes mean for your clients and what we can do to help.
The normal retirement age remains at 55… for now
When Pension Freedoms arrived back in 2015, they introduced greater flexibility in the way pension benefits could be taken. The minimum retirement age at the time was 55. That meant that anyone over that age had full access to their pension fund, and that remains the case.
As far back as 2014, the government announced that they were looking to raise the minimum pension age. September’s announcement merely confirmed that the change will go ahead. According to the government, legislation is set to follow ‘in due course.’
Economic secretary to the Treasury, John Glen, wrote that the change would reflect increasing life expectancies, encouraging individuals to remain in work and ‘helping to ensure pension savings provide for later life’.
What the change to 57 means for your clients
When it comes in, the change will have the biggest impact on those clients due to retire in 2028.
Anyone born after 6 April 1973 – those aged 47 or younger – will have to wait two years longer to receive their pension.
The impact of the change on your clients will depend on several factors:
Pension Freedoms have been popular since their introduction, especially among those aged 55.
FTAdviser reported back in January, that £35 billion has been withdrawn since Pension Freedoms arrived. Of that amount, £7.5 billion has been withdrawn as soon as retirees were able, i.e. at age 55.
Since 2015, the amounts being withdrawn have fallen steadily – possibly as people got to grips with the tax implications of large withdrawals. The UK-wide lockdown this year also partly accounts for the 18% drop in withdrawals for Q2 of 2020, compared to 2019.
But there are still large numbers of people looking to withdraw their whole fund as soon as possible. For those people, plans might have to change.
Your clients might have been looking to access their pension pot flexibly at 55 for many reasons. These might include:
Some clients might consider using a pension lump sum to pay off a mortgage.
This could significantly reduce a client’s outgoings, freeing them up to contribute more money to a workplace pension, and benefit from pension tax relief. The Money Purchase Annual Allowance could kick in, though, depending on the pension option they choose.
This is a big decision and we would strongly recommend your client seeks professional financial advice before using their pension fund in this way.
If a client is due to retire in 2028, they still have time to adapt to the changed pension age. If they have high-interest debt, their best plan might be to use the time to pay the debt off. We could help them to come up with a financial plan that does just that.
Now might also be a good time for your clients to review their mortgage and ensure they’re getting the best deal.
By reducing the debt they take into retirement, or by taking no debt at all, all of your client’s hard-earned pension can go towards providing them with their desired lifestyle in retirement. We can help to make your client’s retirement dreams a reality.
In 2019, the Bank of Mum and Dad lent £6.3 billion to help their children onto the property ladder. If your clients were intending to access their fund for this purpose, they might need to look to other investments and products.
With eight years to plan, we can help them work the pension age changes into their long-term planning. Whether through waiting an additional two years or by freeing up funds elsewhere, we can advise on the best, and most tax-efficient way for your clients to help their children into their first home.
Despite the travel restrictions that have plagued the tourist industry through 2020, for those aged 47 now, retirement might mean a chance to head off on an adventure and see the world.
Whether those plans have to be pushed back to 57 or not will depend on the individual.
By having a long-term financial plan in place – one that takes into accounts your clients’ circumstances, attitude to risk, and future aspirations – we can help to make this decision easier.
Get in touch
If your clients’ retirement plans could be affected by the changes due to come into force, please get in touch with us. Email email@example.com or call 0116 2407070.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
Workplace pensions are regulated by The Pension Regulator
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