The age at which retirement savers can access their private pensions will increase from 55 to 57 in 2028, the Government has confirmed.
The rule change means that anyone who is currently aged 47 or under will have to wait an extra two years to flexibly access their private pension.
The Government first indicated plans to raise the age threshold in 2014, one year before pension freedoms were introduced, but did not legislate for it.
John Glen, economic secretary to the Treasury, said:
“In 2014, the Government announced it would increase the minimum pension age to 57 from 2028.
“This reflects trends in longevity and encourages 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.”
What are pension freedoms?
Introduced in 2015, existing pension freedom rules offer more options to over-55s when it comes to accessing their pension before retirement.
The rules currently offer over-55s the opportunity to access 25% of their pension pots without paying tax.
While withdrawing 25% of your pension pot tax-free is nothing new, the options available at the age of 55 have increased.
Before the rules came into force in 2015/16, it was a straight choice between buying an annuity or a drawdown product.
Now, retirement savers have six main options for accessing their defined contribution pension before retirement.
Pension options at 55
More than 4.5 million retirement savers have accessed a total value of £37 billion from their private pensions in the last five years.
The most obvious option is to continue saving into a pension for your retirement and allow your fund to grow.
Savers can withdraw smaller sums of cash from their pot in chunks, with 25% of each withdrawal tax-free.
Alternatively, it is possible to take the entire pension in one go. The first 25% will be tax-free and the rest will be taxable at the saver’s marginal rate.
Buying an annuity provides you with guaranteed income for the rest of your life, although subdued annuity rates continue to offer poor returns.
A risky strategy is to purchase a flexible income drawdown product to buy investments, although these can rise and fall in line with market sentiment.
Savers can also mix and match by withdrawing 25% of their pot tax-free and buying an annuity or an adjustable income product with the rest.
While these flexible options are scheduled to remain on the table in 2028, they cannot be accessed until a saver’s 57th birthday.
The bigger picture
The increase to the pension freedoms age should kick in at roughly the same time as changes to the state pension.
The state pension age, which rises to 66 for both men and women next month, is due to increase to 67 for both genders between 2026 and 2028.
Next month’s state pension age equalisation will affect anyone born between 6 October 1954 and 5 April 1960.
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