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Pension age to increase to 57 from 2028

Adrian Crowe, Senior Consultant, Financial Planning
14/09/2020
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What does this mean for you?

The government has confirmed the point at which people will be able to access their personal pensions is to increase from 55 to 57 in 2028. 

Economic secretary to the Treasury John Glen has confirmed: "In 2014 the government announced it would increase the minimum pension age to 57 from 2028, reflecting trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life. That announcement set out the timetable for this change well in advance to enable people to make financial plans and will be legislated for in due course."

In 2014 it was also confirmed that the exception to this change would be for the Firefighters, Police and Armed Forces pension schemes as these schemes’ normal pension ages reflect the unique nature of these occupations.

The government has also previously announced that the minimum pension age will remain ten years below State Pension age thereafter and that it plans to increase state pension age to 68 between 2037 and 2039. We should therefore assume that the minimum retirement age will be increased to age 58 in line with this.

Actions to take

  • Revise your retirement plan: there will be a number of people (such as those who turn age 55 in 2028) who will need to revise their retirement plans so as to be able to fund the additional two year period from alternative provision until they can access pensions or consider deferring retirement for a further two years.

  • Review your ‘pension mortgage’ if you have one: some individuals may have taken out a pension mortgage and viewed their tax-free cash entitlement as the method for paying off their mortgage. If this is the case, then those individuals might need to review their strategy in view of this proposed change.

  • Ensure your financial plan is flexible: it is clear that the overriding concern of government is to ensure that in an environment of increasing longevity, individuals accrue and retain sufficient personal pension savings so as to provide for later life and minimise reliance on state benefits. When constructing a financial plan this should be born in mind and should incorporate sufficient flexibility to as to allow for future legislative changes as well as changes to personal circumstances.

  • Review your retirement income provision strategy: currently individuals are allowed to withdraw up to 25% of their pension as a tax free lump sum.The residue can be used to provide a taxable income.Under pension freedoms, there is the flexibility to draw a taxable income from the residue without restriction rather than purchasing a guaranteed income such as an annuity. However, this could alter if trends show that individuals deplete capital prior to death and become reliant on the state in retirement. Equally, while pensions do not currently form part of an individual’s estate for Inheritance Tax (IHT) purposes and many wealthy individuals pursue a strategy of preserving pension funds and drawing down on other assets which are assessable to IHT to provide retirement income, it would be unwise to adopt this to excess for fear of future legislative changes.

Summary

Pension contributions remain an extremely tax efficient form of saving for retirement and where possible, individuals should ensure they maximise the amount they save into pensions. However, pensions legislation and tax reliefs can be complex and careful consideration should be given prior to taking any action.

Given the current climate, there has also been considerable speculation on the generous tax reliefs currently applying to pension contributions and it would not come as any surprise if Rishi Sunak were to announce some further changes in the upcoming autumn statement.

Get in touch

Our financial planning team can help you devise your retirement planning strategy and advise on pensions accordingly. They can also help you consider other tax efficient means of saving for retirement.

If you have any questions about the issues raised in this article, get in touch with your financial adviser or contact one of our financial planning consultants.

Contact us
Phil Smithyes
0118 959 7222
Thames Valley
Miles Clarke
0118 959 7222
Thames Valley
Adrian Crowe 
020 7842 7187
London
Richard Dean
01242 234421
Cheltenham
Stuart Elder 
0118 959 7222
Thames Valley
Aron-Gunningham
0118 959 7222
Thames Valley
Julian Hanrahan
01622 767676
Maidstone
Dharmesh-Upadhyaya  Dharmesh Upadhyaya
020 7842 7325
London
 

Risk Warning

Crowe Financial Planning UK Limited is authorised and regulated by the Financial Conduct Authority (‘FCA’) to provide independent financial advice.

The information set out above is for information purposes only and does not constitute advice to undertake a particular transaction. Appropriate professional advice should be taken on specific issues before any course of action is pursued.  Any advice provided by a Crowe Consultant will follow only after consideration of all aspects of our internal advice guidance.

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Contact us

Adrian Crowe
Adrian Crowe
Senior Consultant, Financial Planning
London