The age you can access defined contribution (DC) pensions is rising. Research suggests that many people are unaware of this, but it could affect your retirement plans. Alastair Shaw, Independent Financial Adviser at Pembroke Financial Services, explains the impact it could have.
Alastair said: “At the moment, you can access money saved into a DC pension scheme from the age of 55. However, from 2028, this will rise to 57. If you’d hoped to access your pension at 55, whether you plan to retire then or not, the additional two years may mean you need to rethink your plans.
“The pension age is rising as longevity increases, which means your pension will need to last longer. When it rises in 2028, it will be 10 years before you can claim your State Pension. This provides retirees with some flexibility to retire sooner and create the lifestyle they want. The government could also announce further increases to the pension age in the future.”
7 in 10 adults aren’t aware of the rising pension age
While 83% of UK adults are aware there is a minimum age to access a DC pension, many are unsure when this is, according to an Aegon survey. Two-thirds of people questioned correctly identified 55 as the current minimum. But just 22% knew that the minimum pension age will increase to 57 in 2028.
If you don’t turn 55 until after April 2028, will the change affect your pension plans?
Alastair added: “You don’t have to be planning to retire at 55 to be affected. Perhaps you’d hoped to take a lump sum from your pension to pay off the mortgage early or travel before returning to work. Or you may have been hoping to cut back your working hours, using your pension to bridge the gap before you can claim the State Pension.
“Two years may not seem like much, but if you’d planned to use your pension in some way before turning 57 it can leave a hole in your finances. It may mean plans you’re looking forward to are no longer possible without adjustments. Understanding if it’ll affect your goals now can help keep you on track.”
So, if after looking at your plans you realise that the rising pension age will have an effect on them, what can you do?
1. Push your plans back
The simplest solution is to simply push back your plans that relied on accessing your pension back by two years. In some cases, these two years may make little difference to your overall lifestyle and goals. If this is the case, it’s something you may want to consider. And if this is something you’re thinking about, you should weigh up your priorities now and in the future.
2. Change your plans
Depending on what your plans are, adjustments may mean they’re still achievable without having your pension to tap into. If you’d hoped to cut back working hours, cutting back your disposable income in the short term could make sense. Or if you’d planned to take a lump sum from your pension to travel, a shorter trip may still mean you’re able to do this. Reviewing what your goals are can help you figure out what changes make sense for you.
3. Increase your savings now
If your 50s are still some time away, knowing that the pension age is rising gives you time to act. Putting more money away in a savings or investment account that will cover your plans means you won’t have to make changes in the future. If you’re not sure which is the best way to save for your future, please contact us.
4. Use other assets to bridge the gap
You may be able to use other assets to fill the pension gap. This could include savings, investments, or property. Depleting other assets now means you can forge ahead with plans, even if your pension isn’t accessible. However, keep the bigger picture in mind: could using these assets now affect longer-term plans or your financial security?
If the rising pension age could affect you, we’re here to help. Please get in touch to discuss your retirement aspirations and how your assets can be used to help you achieve them.
Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available.
Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation, which are subject to change in the future.