Pension Freedom age set to rise, do you need to change your plans to prepare for it?

The age at which you can take your pension is set to rise, but how might that affect your long-term plans?

From 2028 the age at which you can take your pension is set to rise. The Government confirmed on 20 July 2021 that the Pension Freedom age will rise from 55 to 57 at the end of the tax year April 2028. This means pension holders will have to wait longer to access their savings. The changes are set to be enacted alongside the rise in State Pension age, which the Government says reflects the changing nature of the workforce and the need for pensions to last longer into old age.

But how might it affect your retirement plans?

Anyone who was planning on calling it a day on their 55th birthday might want to think again about how their wealth is distributed. Thankfully with plenty of notice from lawmakers, time is on your side. One change you can make to ensure you have quicker access to long-term wealth is to channel more of your savings towards ISAs. ISAs are not subject to the same restrictions as pensions, so you’ll be able to access the money at an earlier age.

However, this could lead to a smaller overall pot as the tax relief that comes with pensions is extremely valuable. In the first instance, you should not divert any money that comes with extra employer contributions attached.

Unfortunately, the Lifetime ISA (LISA) is not an alternative in this instance. Although the LISA offers generous 25% bonuses up to £1,000 each year, you cannot access the money until age 60, even later than pension freedom’s age.

Pension Freedom loophole

There is however a loophole to the rule changes as they stand currently, which could help anyone who doesn’t want to be affected by the new change in the rules. If you have the age of 55 written into the policy of your pension scheme, you will be entitled to access that money age 55 regardless of the law change. This will count for any pension scheme that has age 55 stipulated before April 2023. As it stands this varies between providers, with some set to move the age automatically to 57.

It is worth checking then what the age on your policy is. If you think you’ll want to access the money as soon as possible, you might consider making the small administrative change that could open your pension savings early. However, before doing so you must consider some of the other implications of changing provider or policy – including exit fees, loss of benefits, costs and loss of investment returns, before making a decision.

If you’d like to discuss any of the themes raised in this article about pension freedoms or your pension more generally, don’t hesitate to get in touch with your adviser.