Cut and pasted from an A J Bell email received Thursday afternoon 16/02/2023:
It’s important to understand how the rule changes will impact your financial planning
Author: Tom Selby
The earliest age a pension can be taken is going up to 57 in 2028. Those who are 50 now might not be aware the impact this will have on their decisions. Can you elaborate? Steve
Tom Selby, AJ Bell Head of Retirement Policy, says:
You are referring to the ‘normal minimum pension age’ (NMPA), which is the youngest age someone with a defined contribution pension can access their retirement pot.
The NMPA is currently set at age 55 and is scheduled to rise to age 57 in April 2028, the same date the state pension age is due to increase to 67. That means if you are roughly aged 50 or younger today, the earliest you can access your pension in most circumstances will be 57.
The NMPA is then expected to remain 10 years lower than the state pension age, meaning it should increase again to 58 in April 2046 (when the state pension age is due to rise to 68).
If you have a defined benefit scheme, the age at which you receive your retirement income – and any tax-free lump sum entitlement you choose to take – will usually be determined by your scheme’s ‘normal pension age’ (NPA). Some schemes will allow you to take your income early, usually at a lower rate.
It is not possible to take your state pension early, although you can defer taking it if you want to.
The Government has created a complex set of rules to manage the transition to an NMPA of 57. Rather than apply the increase across the board, it has proposed creating a ‘protection’ regime so savers in a scheme which gave an ‘unqualified right’ to a NMPA below age 57 on 11 February 2021 can retain that earlier pension access age. This will be known as a ‘protected pension age’.
If people with this protection subsequently make an individual transfer to another (non-protected) scheme, the transferred funds will be able to keep the lower NMPA – although any benefits held in the receiving scheme before the transfer, or new contributions, will have a NMPA of 57 from April 2028.
People with a protected pension age who transfer as part of a ‘block’ with at least one other member of the same old pension scheme to the same new scheme at the same time will be able to retain the lower NMPA for all their funds in the new scheme, including any new contributions in.
Think carefully about what you are going to do with the money if you do access it early (such as in your late 50s), and how making the withdrawal today could impact the future sustainability of your retirement plan. If you are unsure, speak to a regulated financial adviser to better understand your options.
Comment
This could be a complex area but it’s not likely to impact on too many people in the UK, the majority can’t afford to retire earlier than age 65 or even State Pension age.
With regards to State Pension age we know that we are getting age 67 from April 2028 but age 68 is less clear in terms of timing. I’ve read that this being looked at for 2044 and that this is under review. Apparently, the State Pension age could be age 68 as early as 2038.
The key message for me here is that if you want to retire early take control and build enough of your own pension and investment assets so that the State Pension age does not impact on your early retirement plans.
Why are the government increasing State Pension age on a regular basis? To try and counter the increasing cost of the ageing demographics in this country. To increase State Pension age is a win/win for the State. They save money paying out State Pensions later on, and it is likely more people will remain in work paying tax etc.
Steve Speed
16/02/2023