Consultation launched into raising pension age from 55 to 57

People need some flexibility in when and how they access their pensions, says interactive investor.

The government has announced a consultation on its decision to increase the normal minimum pension age (NMPA) from 55 to 57 in April 2028. The consultation will close on April 22 2021. The government said it does not currently propose to automatically link the NMPA to 10 years below the state pension age. It has also proposed that individual pension schemes may wish to increase the minimum age to 57 sooner than 2028.

Becky O’Connor, Head of Pensions and Savings, interactive investor, said: “Moving the goal posts like this is likely to cause concern for those approaching retirement and make planning harder for them. It’s a curveball at a key life moment for those approaching 50 who will be hit by this.

“When it comes to retirement, there’s no such thing as ‘one size fits all’. People need some flexibility in when and how they access their pensions.

“Life happens, ill health and caring needs can all get in the way of work sooner than expected. Some people could benefit from earlier pension access and it might be appropriate for them. Likewise, others are able to carry on working for much longer than the age at which they become entitled to access their pension, so even at 57, some might not need to tap into funds.

“The shifting of the minimum age for pension access underscores the benefits of using ISAs, as well as pensions for retirement saving.

“People approaching their pension age also need more support in deciding what to do with their pension when they are able to access it. Experience so far suggests that people are more likely to squirrel away too much of their pension in cash rather than squander it on unnecessary spends. But too much cash, rather than carefully investing for growth, can also reduce the chance of someone’s pension lasting through retirement.

“The normal minimum pension age (NMPA) is intended to be 10 years earlier than the state pension entitlement age, which will rise to 67 by 2028, so the proposal to raise it to 57 from 55 in 2028 is aligned to that aim. However the consultation suggests the government won’t make the link automatic, which means the NMPA is likely to be reviewed again when the state pension age is set to rise to 68, expected between 2037 and 2039.

“Leaving the door open to pension schemes to implement this change sooner is likely to cause confusion among both providers and pension savers.”

Notes to editors

https://www.gov.uk/government/consultations/increasing-the-normal-minimum-pension-age-consultation-on-implementation. Within the consultation, the Treasury states that: “While the government believes in the principle that individuals should have freedom and choice in how they use their money, it is also necessary to balance this with ensuring that people use their retirement savings for their intended purpose: income and security in later life.

“The decision to retire is a very personal one, and evidence shows that, since the default retirement age was abolished in 2011, individuals retire both before and after state pension age for a variety of financial and non-financial factors (including their health and interest in working longer).8 Therefore, in determining where best to set the NMPA, given that there is no one ‘trigger’ for retirement, the government considers state pension age is the best proxy. In 2014 the coalition government announced that it would be appropriate for the NMPA to be set at 10 years below state pension age.”