What does a rise in pension age mean for your long-term plans?


If you are currently aged 47 or younger, a recent government announcement could mean you have to wait two years longer to receive your pension.

For the 2020/21 tax year, the minimum pension age is 55. That means that, under current rules, anyone over that age can release all their pension funds via ‘flexible’ Pension Freedoms.

This has been a popular choice. Since Pension Freedoms were introduced, £7.5 billion of the £35 billion flexibly withdrawn, has been taken out by those aged 55. And with nearly one million people turning 55 in 2020, those numbers might be about to increase.

From 2028 however, the minimum pension age is set to rise to 57.

What does this mean for your retirement plans and what can we do to help you prepare for the change?

What has been announced?

The government’s intention to increase the minimum retirement age was first announced back in 2014. Earlier this month, the government confirmed the change.

As the economic secretary to the Treasury, John Glen, wrote recently, the change reflects increasing life expectancies and is intended to encourage individuals to remain in work.

We’re all living longer and that means the pension benefits we take out – whenever we choose to take them – might need to last that much longer.

The last change to the minimum age took place in 2010 when it rose from 50 to 55. With pension flexibility giving retirees much greater choice now, the implications for your plans could be far-reaching.

You will be most severely impacted if you were born after 6 April 1973. You’ll have to wait two years longer to receive your pension and that might mean a change to your retirement plan.

Who will the change affect?

The change will only seriously impact you if you will be 55 after April 2028 and you had planned to take some or all of your retirement benefits as soon as current rules allow.

How your plans will change depends on what you wanted to use the money for, whether you have savings or investments elsewhere that could plug the gap, or whether you’re prepared to wait an extra two years.

If you don’t intend to retire until much later – when you reach State Pension age, for example – the change won’t affect you.

What does the new retirement age mean for you?

If you planned to take a lump sum from aged 55, it could have been for several reasons. These might include:

  • Big-ticket items such as house renovations or world travel

Coronavirus has ensured it’s been a difficult year for the travel industry but if your retirement is still a few years away you might be thinking about using a pension lump sum to realise your dreams of an overseas adventure.

Similarly, if you’re content to stay in the UK but were looking to use the funds to create your dream home for retirement, you might need to put these plans back a couple of years. Or find the money from elsewhere.

If you have investments, bear in mind that these may have been intended to supplement your retirement income so weigh up the impact of releasing these funds early.

  • Paying off a mortgage

Taking debt into retirement means that you have less money with which to provide the retirement you want. You might have been considering using a pension lump sum to pay off your mortgage.

This is a big decision so speak to us before deciding whether it’s right for you. Remember that with eight years to go until retirement, it might be possible to reduce your debt via different means. We can help you arrive at a solution that fits your financial position.

  • Helping the next generation

Whether you are hoping to use the money to help a child through university, or into their first home, a two-year delay could have serious consequences for your plans.

You might need to look to other investments you hold or speak to us. We can advise you on any necessary changes to your plans and ensure the changes you make are tax-efficient and focused on your long-term goals.

Get in touch

Taking a sizeable proportion of your available retirement income as a lump sum frees up a large amount of cash but also leaves you responsible for budgeting your income for the rest of your retirement.

It can be a difficult decision to make and the recent change to the minimum retirement age might have made the choice even trickier. Speak to us and we can help align your financial position with your aspirations for retirement and beyond.

If you’d like to discuss what a rise in pension age will mean for your long-term financial plans, get in touch. Please email info@investmentsense.co.uk or call 0115 933 8433.

Please note

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.