Insurers slam ‘complicated’ and ‘arbitrary’ plans to raise the age most (but not all) can tap their work or private pension to 57
- The Association of British Insurers (ABI) has called for the Government to implement a simpler approach around the pension age rise
- Government says some savers will be able to keep protected pension age of 55
- ABI says 57 should be implemented across the board with limited exceptions
Pension industry insurers have called for the Government to adopt a simpler approach when it raises the age savers can tap into their pension pots from 55 to 57.
The Association of British Insurers (ABI) says the proposals for 2028, set out in a consultation closing today, will cause ‘enormous confusion for pension savers navigating the already complicated UK pension system’.
Under the proposals, the Government says some savers will be able to keep their protected pension age of 55, but the ABI says the 57 age should be implemented across the board with only limited exceptions for uniformed services and those who already had a protected pension age.
The UK’s leading insurer trade body has called for the Government to implement a simpler approach when it raises the age savers can tap into their pension pots from 55 to 57 in 2028
The rise in the ‘normal minimum pension age’ is designed to reflect rising life expectancy and to stay in line with the state pension age, which is scheduled to increase to 67 in the same year.
The age that you can usually first access a private pension without tax penalties is called the normal minimum pension age (NMPA).
There are currently some limited exceptions where you can access your pension earlier and this is called a protected pension age.
If the new proposals go ahead, millions of people who have the age of 55 written into their scheme rules would be exempt from the age increase.
In an article written on behalf of the ABI, tax adviser and policy maker Dan Gallon outlines how these ‘complicated’, ‘confusing’ and ‘arbitrary’ allowances should be scrapped.
He states: ‘The proposals are too complicated and will create too much confusion for the tens of millions of people affected as they will not be simply be able to answer the question ‘At what age will I be able to access my pension’.
‘The ABI now call for these proposals to be withdrawn until something fit for purpose is developed.’
Gallon highlights that making exceptions will cause mass confusion, especially among those who have multiple pension pots, with different terms and conditions applying for each.
The proposals could also lead to people shifting to schemes that have a protected pension age of 55 in place causing unfair competition within the industry.
In response to the call from the ABI Tom Selby, head of retirement policy at AJ Bell, tweeted in agreement: ‘Agree. Government plans to increase the minimum pension access age are a mess of complexity for little to no benefit. Moving the majority to 57 in 2028 and ditching proposed protection regime the obvious solution.’
There are currently some limited exceptions where you can access your pension earlier and this is called a protected pension age
In response to the call from the ABI Tom Selby, head of retirement policy at AJ Bell, tweeted in agreement
Meanwhile, Becky O’Connor, head of pensions and savings at the DIY pension platform interactive investor, said: ‘The complexity of pensions is already massively off-putting for people and can lead to imperfect decision-making with negative consequences. Further confusion must be avoided at all costs.
‘If the minimum pension age is rising to 57, it should rise to 57 for near enough everyone with a pension. Any exceptions should be minimal, for instance where the nature of the occupation might require earlier access.
‘It’s really important the Government takes on board this feedback as the risk of confusion as well as behaviour change that could worsen retirement outcomes for some is real.’
The ABI is now demanding for the minimum pension age to be increased to 57 for everyone, with the aforementioned exceptions.
Gallon concludes: ‘This means people losing a right they would otherwise have had – so it is not a decision to be taken lightly, but it is important for the sake of simplicity, and the increase has been clearly signposted since 2014.
‘Future UK pensioners deserve better. There are seven years before the proposed change – let’s use that time to find an adequate solution.’
How do you plug the two-year gap?
Carla Morris: ‘Even if you had your heart set on retiring at 55, you can spend the extra two years building up your investments and savings’
This is Money looked at how savers could bridge the gap between 55 and 57 if they want to retire early or need cash here.
Pension experts offered the following advice.
1. Check your mortgages or loans
If you have any that need to be repaid using your tax-free lump sum when you are 55, you should start talking to your lenders as soon as possible, said Carla Morris, wealth director at Brewin Dolphin.
‘Discuss all the options available to you including the options to extend the term of the mortgage or loan. It is important that you are aware of what repayments may need to be made.’
2. Make other arrangements to cover university or school fees
‘People who are turning 55 when their children go to university may well have been thinking about using their tax-free cash to pay fees, or even to help pay school fees,’ said Morris.
‘If you are in this position, do make sure you make additional savings contributions to cover the costs. The earlier you start saving the better and using tax efficient investments such as Isas will ensure returns aren’t taxed.’
3. Review your pensions
Find out if your pension fund will be derisked or ‘lifestyled’, suggested Morris.
‘Some pension providers offer lifestyle funds which move the pension from higher to lower risk over the years, especially as you move towards retirement age.
‘If the provider has set a retirement age of 55, they may start changing the composition of the pension fund too early and you could lose out on some investment gains.’
Read a This is Money guide to derisking a pension, including whether to avoid this or call a halt if it doesn’t suit your plan to stay invested in retirement.
Build up your Isas
Having savings outside of a pension wrapper gives you complete choice, said Ian Browne, pension expert at Quilter.
‘It is illusory for most people to expect to be able to retire in their 50s unless they really have substantial private savings.
‘Isas are much less generous than pensions because they don’t come with the same top-up in the form of tax relief.
‘The trade-off with a pension is that you get that savings boost from the Government, but you have to keep your money locked up for longer. With an Isa you can withdraw money to supplement your income at any time.’
TOP SIPPS FOR DIY PENSION INVESTORS
Read More: ABI slams ‘complicated’ plans to raise pension access age to 57