The rise in pension access age from 55 to 57 could leave savers in limbo, warns Evelyn Partners.
The Normal Minimum Pension Age is set to rise to 57 on 6 April 2028, designed to coincide with the increase of the minimum State Pension age to 67, so that it tracks 10 years below. The NMPA was most recently raised in 2010, when the minimum age increased from 50 to 55.
Gary Smith, partner in financial planning and retirement specialist at Evelyn Partners, said: “This seemingly straightforward rule change could catch out thousands of unsuspecting pension savers. Many face a cliff-edge, where their ability to access their pension is suddenly put back for up to two years.
“‘Pension holders who turned 55 before the start of this financial year will be unaffected as their access age is unchanged. At the other end, for the majority of younger savers, there is no decision to be made but it will clearly delay the point at which they can access their pension. A two-year cohort in the middle, however, have an option to retain access to funds that otherwise will be delayed.
“All savers in their early fifties need to be aware of how their age might mean they need to rethink retirement plans because their access to pension funds is either compromised or delayed.”
According to Smith, the headline messages are that those of a certain age, who turn 55 between 6 April 2026 and 5 April 2028 and want to avoid the impact of the NMPA rise and retain flexible access to their pensions, might want to crystallise pension arrangements prior to 6 April 2028.
Furthermore, savers with a definite retirement date in mind might need to have other funding arrangements in place such as ISAs and investments to act as a bridging income until they can access their pensions.
Finally, people must find out if their pensions have a protected retirement age. Many defined benefit and some defined contribution schemes confer this and other benefits so it is best to take advice before consolidating or transferring, says Smith.
He said: “Although the NMPA will increase to 57 from April 2028, it will still be possible for those who reach their 55th birthday before this date to potentially access or continue to access their pensions. But the proposed rules are complex and HM Revenue & Customs have yet to finalise the regulations in respect of transitional retirement.
“Among other complications, there is a sensitive two-year cohort who, if they are caught unawares by the NMPA increase, could miss a chance to avoid being shut out from their pension savings for up to two years.”
Smith notes that if someone reaches 55 before 6 April 2028 but opts not to crystallise any of their retirement benefits before this date, they won’t be able to start taking retirement benefits until they reach their 57th birthday.
For those who reach 55 before 6 April 2028 and crystallise pension benefits by moving into drawdown, purchasing a lifetime annuity or receiving a defined benefit scheme pension, these can continue in payment after 6 April 2028, even though the person will not have reached the age of 57 by that date.
Where someone is in drawdown, they will be able to vary the income they take and/or take lump sum withdrawals from crystallised funds. However, these individuals will not be permitted to crystallise any further pension benefits until they reach their 57th birthday.
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