The government is preparing to allow people who have started taking money from their pension to continue receiving it, even after the minimum pension access age changes.
The normal minimum pension age (NMPA) – the age at which you can start accessing your private pension savings – is set to rise from 55 to 57 in April 2028.
The aim of this is to keep pension access in line with the state pension age, which rose to 66 in 2020 and will rise to 67 in March 2028.
Pensions experts had been concerned that under current rules, retirees who reach 55 and start drawing on their pensions before April 2028 could lose access for up to two years once the new NMPA of 57 kicks in, potentially disrupting their retirement plans.
For example, if you turned 55 in March 2028, you could potentially have accessed your pension for one month, then would not be able to take more money.
But it is understood that the government is currently drafting transitional regulations in which it will set out that anyone who has started to receive pension payments can continue to do so after April 2028, regardless of their age at the time.
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However, if you have not begun drawing on your pension by April 2028, it is understood you will have to wait until you turn 57 to begin accessing it. This could leave you in a situation where you have access to some of your pensions but not others.
Jamie Jenkins, director of policy at Royal London, said his company has seen an increase in questions from financial advisers and customers this year who have been concerned about drawing from their pensions and potentially losing access later on.
“As far as we’re aware, someone turning 55 after April 2026 could start taking money from their pension but may have to cease doing so from April 2028 until such time as they turn 57,” he said.
“The pragmatic approach would be to allow people who are already taking benefits to continue to do so after 6 April 2028, regardless of what age they are.”
The government is also planning to introduce certain protections for people who have a ‘protected pension age’ of 55 and transfer their pension to another provider.
A protected pension age means you can access your pensions for the first time at 55, even once the minimum pension age rises, this is often available to members of uniformed services such as police and the armed forces.
However, there has long been confusion around whether transferring out of a pension with this protection means you lose your protected pension age on that money.
The pensions industry has been undertaking a widespread ‘sweep up’ exercise over the past few years to track down people who have transferred their pensions where they had a protected pension age of 55 on their old pension and may have inadvertently lost it by transferring.
Renny Biggins, head of policy, products & long-term savings at The Investment & Savings Association (TISA), said: “It’s good to know these rules are coming out, as consumers need certainty to give those who fall within the impacted age bracket the ability to plan with confidence.
“Given the initial NMPA rules came in November 2021, it’s fair to say we were expecting the transitional regulations much earlier than now. But when they do come in, [these changes] will be very welcome for industry, as schemes have been waiting on these to update processes and make changes to their member communications.
“This may also act as a timely reminder for pension schemes which haven’t provided protected pension age details for transfers out to do so as soon as possible.”
Steve Webb, partner at consultancy LCP, added: “It would be quite wrong if the government were to switch off the ability to access pensions of those who had already started doing so when they reached 55.
“We urgently need to see confirmation in the rules from HMRC that you can go on accessing your pension if you have started doing so.”
A spokesperson for HMRC said: “Further details on transitional rules for the rise in the NMPA will be provided before 6 April 2028. Schemes will confirm how their rules and member protections apply for those under 57, and savers can contact their scheme to understand any impact once the regulations are published.”
Should you access your pensions as early as possible?
Many people will be waiting eagerly for the opportunity to get their hands on their pension money, which has been locked away for most of their working life.
But experts say that if you don’t actually have a plan for how you want to spend it once you reach the minimum pension age, or don’t need it to live off, the best thing to do is leave it alone.
That’s because pensions are tax-free, meaning money sat within a pensions wrapper can grow without incurring any tax. Pensions also benefit from compounding – where the more that is invested, the faster they keep growing.
So, if you start withdrawing from them earlier than you need to, you are reducing the amount that can benefit from compounding in a tax-free environment.
Webb said: “It remains the case that, for most people, carrying on paying in to your pension and building it up rather than accessing it early is likely to be the best way to secure a decent retirement, especially given the modest pension pots that most of us have been able to build up to date.”
If you do have something you want to spend some of the money on, such as a new house, experts recommend initially sticking to your 25 per cent tax-free lump sum if you can – the amount you can withdraw from your pension before you start paying income tax on the payments.
Helen Morrissey, head of retirement analysis at Hargreaves Lansdown, said: “Many people will use [their tax-free cash] for a pre-planned reason – for instance travel or home renovations – but you can also use it minimise your tax bill. If your provider offers phased drawdown, then you can take your tax-free cash in stages.
“You would move portions of your pension into drawdown and take 25 per cent tax free while leaving the rest of it invested. If you take it in one go and keep it in savings rather than an ISA, then you risk paying tax on any interest.”