Why we need legislation on increase to minimum pension age

3 weeks ago

To be able to plan effectively for later life, people need to have all the facts in front of them. One of those is the minimum age someone can access their pension benefits.

Back in the day, this used to be aged 50 for most people. There were some exceptions; some people were awarded an earlier minimum pension age because of their occupation or because their scheme rules allowed it.

The minimum age was raised from 50 to 55 in 2010, although it was legislated for in the Finance Act 2004 as part of the A-Day changes, giving people six years to adjust their plans.

But the increases don’t stop there. The Government always intended to raise the minimum pension age again to 57 by 2028, when the state retirement age increases to 67. This would maintain a 10-year difference between the minimum pension age and the state pension age. (For the purposes of simplicity, we will just conveniently forget the state pension age is increasing to 66 by October, and therefore the minimum pension age should have increased to 56 by the end of this year.)

Although we knew the Government intended to raise the minimum pension age to 57, this hasn’t yet been legislated for, making it difficult for people to plan with any certainty.

But we may be moving towards greater certainty. Stephen Timms – an ex-shadow DWP Secretary and the current chair of the Work and Pensions Select Committee – recently raised a parliamentary question about the minimum age. In answering, the Treasury Minister John Glen reiterated the intention to increase it to 57, saying that the change would reflect trends in longevity and encourage individuals to remain in work. It would also help to ensure pension savings provide for later life.

This is going to come as a blow to some in their 40s, who will now have to wait another two years to take their tax-free cash. But I’m not sure this statement brings us any more assurance than we had before. All we have is a Government’s intention to do something, and that is not worth very much to some people.

Now the intended change is eight years out, it’s the right time to enshrine it in law. This shouldn’t be too difficult. The Government will need a Finance Bill to slot it into – but we have at least one every year.

Legislation is needed to give people clarity and the ability to plan effectively. We need more than a mere intention; we need details. Will the change apply to all pension schemes, including defined benefit schemes? Back in 2014, when the increase was first mooted, the intention was that all schemes would be caught, except public sector schemes that do not link their normal pension age to state Pension age. For example, schemes for firefighters, police and the armed forces.

And when will it start? Will the minimum pension age be increased gradually over two years, in the same manner the state pension age is planned to increase from 66 to 67 between 2026 and 2028? For example, those born 6 April 1960 to 5 May 1960 have a state pension age of 66 years and one month.

Or will the increase be a cliff edge? I think this more likely, given what happened in 2010. And it would be a lot simpler, as well. Having different minimum pension ages for different people sounds a horrendously complicated prospect.

And when will it start? 6 April 2028 sounds the obvious answer. But a closer look at the planned timetable for the state pension age increases show those born between 6 March 1961 and 5 April 1977 have a state pension age of 67. Introducing the minimum pension age hike on 6 April 2028 will mean those born 6 March 1961 to 5 April 1973 will have a state pension age of 67 and a minimum pension age of 55, distorting the simple message of a 10-year difference between the two.

Although that’s not catastrophic, it still highlights that we need all the details to be able to plan effectively. People should not be left in the situation of making assumptions. History shows that communication about when someone can expect pension benefits is important – many women struggled when they found out too late their state pension age was increasing.

To be able to plan effectively for retirement is a tricky concept. There are already far too many unknowns – when will someone die, will they need care in later life, what financial demands will be made on them by their family, what will happen to investments over their retirement period. The list goes on and on. It’s only right that people get the right facts. And in this case, that requires legislation from Government sooner rather than later.

This article was previously published by Money Marketing

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Rachel Vahey

Rachel Vahey

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Senior Technical Consultant

Rachel is a Senior Technical Consultant helping financial advisers and planners understand the changing pensions and savings environment, as well as how new legislation and regulation affects them and their clients. She’s well known within the pensions and savings industry, and regularly speaks at AJ Bell events, alongside writing content and articles for our website.

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