For the best part of two decades, pension savers in their 40s have counted on being able to access private pension cash at the age of 55. But in just seven years’ time, that is set to change. Earlier this year, the government confirmed that from 6 April 2028, the earliest age at which you can take money from your savings will rise to 57, in line with the rise in the state pension age to 67 that takes full effect at the same time.
For anyone hoping to take cash from a pension at a relatively early age, understanding the detail of this change and acting accordingly is vital. A mis-step now could see you forced to change your plans.
Crucially, how you will be affected will depend on the rules set out in your pension scheme, whether it is an individual arrangement or a workplace plan. Some schemes explicitly say you will be able to access your money at age 55. Wherever this is the case, it is likely that even after April 2028 you will retain this right for as long as you stay in the scheme, though ministers have not published the final rules on this. In other cases, scheme rules say benefits are available from the “normal minimum pension age”, or NMPA, the technical term for the age set by the government. If you belong to one of these schemes, the age at which you can get at your money will rise to 57 by April 2028 at the latest.
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Timing is everything
The change may come even sooner. The government plans to give pension providers the right to increase their NMPAs earlier if they wish. Some schemes may choose to move more quickly.
For individual savers, these nuances have important implications. You need to understand exactly how your scheme operates in order to know when you might be able to begin withdrawing benefits. You also need to think carefully about any plans you may have to transfer your pension to another provider, which might mean giving up the right to access pension benefits at age 55.
For people turning 55 around the time the NMPA is due to rise, the timing of any withdrawals could make a massive difference. If you reach 55 in March 2028, say, you will be able to access your pension straight away, assuming your scheme hasn’t moved early. But if you wait a month before taking action, the chance may have gone; you may have to wait until March 2030.
Thousands hit by shrinking allowance
Some 260,000 Britons dipped into their pension savings for the first time in 2020. Many of these savers will want to keep saving but their ability to do so has been curtailed by the rules on pension contribution allowances.
While the maximum you may save in a private pension each year is usually £40,000, or the total value of your income if this is lower, a different cap applies once you have begun accessing your savings. This “money purchase annual allowance”, or MPAA, is just £4,000 a year.
In the past, this rule has only worried a small number of people, since most of those beginning to withdraw money from their pension funds have been moving into retirement and stopping contributions altogether.
However, many of those who made withdrawals last year will have been over-55s struggling with the impact of Covid-19. Many may want to make further pension contributions as their finances improve – and may not be expecting to retire for a decade or more.
But they may now find the MPAA limits their ability to save with maximum tax efficiency. Take advice if you are considering accessing your pension: there are ways to get at savings without triggering the MPAA. Withdrawals of tax-free cash, for example, do not count. Nor do withdrawals from very small pension funds.
David Prosser is a regular MoneyWeek columnist, writing on small business and entrepreneurship, as well as pensions and other forms of tax-efficient savings and investments. David has been a financial journalist for almost 30 years, specialising initially in personal finance, and then in broader business coverage. He has worked for national newspaper groups including The Financial Times, The Guardian and Observer, Express Newspapers and, most recently, The Independent, where he served for more than three years as business editor.
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