Government Confirms Pension Freedom Age Increase To 57

On Thursday 3^rd September, the Government announced that the age at which people can access their private pension funds will increase from 55 years of age to 57 in 2028. The news means that many people currently in their forties (and below) will have to wait an extra two years to access their private pensions.

The increase in age has been long awaited as the Government first indicated an intention to increase the threshold back in 2014 but it was never legislated. However, yesterday, Economic Secretary to the Treasury, John Glen, confirmed that the Government’s original plans were to go ahead and would be put into legislation in “due course”.

The age increase will apply to all private pensions, including the majority of workplace pensions (Defined Contribution (DC) pensions, whereby the employee contributes to the pension fund alongside their employer) and personal and stakeholder pensions.

This announcement will not impact the age at which state pension can be claimed.

Pension freedom changes

The pension freedom changes came into effect in April 2015, which meant that workers could withdraw 25% of a pension amount as a tax free lump sum payment when they reached the age of 55. Additionally, workers could withdraw more than 25% of their pension fund, but the withdrawals would be taxed as if it were income.

The thinking behind this measure was to allow workers to have more choice and freedom over what to do with their pension, rather than buying an annuity – a product which pays the person an income every year until they die.

Importance of reviewing private pensions on a regular basis

If you have a private pension(s) which you have paid into over the years, hopefully you will already be reviewing it on a regular basis, preferably with a financial adviser. But if not, it is vital to take stock of your current situation, reviewing your investments and consider what is best for your future.

A review of your pension(s) gives you the chance to pause, look at your whole situation and to see whether the dreams and ideas you had for retirement can now come to fruition.

Taking into consideration other savings

When reviewing your pension(s), it is also important to take into consideration different saving pots you may have, such as cash, investment bonds, ISAs and share portfolios. The assumption has historically been that if you have a pension, when you retire you use this to provide you with an income, but that isn’t necessarily the right decision.

By reviewing your financial circumstances, you can evaluate all your options and structure your income to optimise your tax position. This includes looking at income tax, but also capital gains tax and inheritance tax. When this is all taken into consideration, it may be that your income can be generated from other savings and you don’t need to touch your pension.

Not using your pension, can reduce the inheritance tax liability for your estate, because pensions aren’t included in the inheritance tax calculation, thereby increasing the long-term financial security both for yourself and your family.