Making sense of the new minimum pension age rules
The rules surrounding the minimum age at which you can start tapping into your retirement savings have been tweaked, but are still confusing. David Prosser explains.
When is the minimum pension age not really the minimum pension age? When you’re in a pension scheme with a “protected pension age”. But while there are plenty of these schemes, it is now too late to transfer into one.
This is a saga that has been going on since July, when the government announced that the minimum age at which you can begin drawing down private pension savings will increase from 55 to 57 in April 2028. However, the change does not apply to pension schemes offering protected pension ages: schemes where the rules explicitly state that savers will be allowed to access their cash at a specific age or on a specific date, rather than simply at the normal minimum pension age. In these schemes, the protected pension age takes precedence.
Pension experts didn’t like the reform. For one thing, the rules are confusing, effectively creating a two-tier system that allows some people to cash in their savings sooner than others. Potentially more seriously, many feared that the new rules were an open invitation to pension scammers and cowboy advisers. They worried savers would be encouraged to move savings into schemes with protected pension ages, even though doing so might be completely inappropriate for their needs.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
In the run up to last month’s Budget, the government therefore came under pressure to backtrack on its plans. Ministers initially resisted calls to change tack, but earlier this month did announce a partial U-turn. While they are sticking with the increase in the normal pension age, they have now said savers will not be able to transfer from one scheme to another in order to take advantage of a protected pension age.
In practice, this does not stop anyone transferring pension savings. But if you’re currently a member of a scheme that does not offer a protected pension age and you move your money to one where this is a feature, you’ll only be able to take advantage of it if you initiated the transfer before 4 November.
The hope is that its decision will nip mis-selling in the bud. Since there is now no possibility of transferring pension schemes in order to secure earlier access to your savings, rogue advisers will not be able to push this line.
Nevertheless, the system remains confusing and unequal. From 2028 onwards, some savers – in both individual arrangements and employer-run schemes – will still be able to begin drawing on pension savings at age 55. Others will not have access to their money at age 57.
If you’re planning on retiring early, it is therefore important that you understand exactly what your scheme offers. If you had been planning to start drawing on your pension on turning 55 in 2029, say, it may be that you have to wait until 2031. That may require you to rethink your plans.
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.
-
Zoopla: housing market recovery continuing amid brighter 2024 outlook
The Zoopla House Price Index has found sellers are still accepting five-figure discounts on their properties. But house price inflation is improving.
By Henry Sandercock Published
-
Revealed: the best funds to buy before the end of the tax year
Looking to add more investments to your portfolio but not sure where to start? We reveal the best funds to buy now as the end of the tax year edges closer.
By Katie Williams Published
-
What pension providers don't tell you about your retirement money
Check the small print from your pension provider or risk losing thousands.
By Merryn Somerset Webb Published
-
Britain’s stifling tax burden
Chancellor Jeremy Hunt's Autumn Statement will see the tax burden rise in each of the next 5 years.
By Emily Hohler Published
-
Brace for a year of tax rises
The government is strapped for cash, so prepare for tax rises. But it’s unlikely to be able to squeeze much more out of us.
By Matthew Lynn Published
-
Lock in high yields on savings, before they disappear
As interest rates peak, time to lock in high yields on your savings, while they are still available.
By Ruth Jackson-Kirby Published
-
How to cut the cost of home insurance
Home insurance policies are becoming increasingly expensive, but there are several ways you can keep costs down.
By Ruth Jackson-Kirby Published
-
Are lifestyle funds still fit for purpose?
Lifestyle funds have failed to do what they were supposed to do – shield savers from risk in the run-up to retirement.
By David Prosser Published
-
Act now to bag NatWest-owned Ulster Bank's 5.2% easy access savings account
Ulster Bank is offering savers the chance to earn 5.2% on their cash savings, but you need to act fast as easy access rates are falling. We have all the details
By Marc Shoffman Last updated
-
Moneybox raises market-leading cash ISA to 5%
Savings and investing app MoneyBox has boosted the rate on its cash ISA again, hiking it from 4.75% to 5% making it one of top rates. We have all the details.
By Ruth Emery Published