I’m currently 47 and turn 55 on 29 March 2028. I’ve also been heeding the advice of your pensions column over the years and my pension savings pot has now hit the lifetime allowance limit of £1,073,100.
Gov.uk tells me that my state pension age is 67. I’m trying to plan for my financial future but finding this extremely challenging given the uncertainty.
My question is, am I one of the lucky ones who misses the cut by a few days by virtue of the start date in the new 2028-2029 tax year or is it likely to be more complicated than this for people like me – especially as my state pension age is now stated as 67.
What are the likely possibilities for me do you think? Any pension planning advice welcome.
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Retirement plan: I have a £1m-plus pension and will turn 55 in 2028, just before the age you can access private pots rises to 57 (Stock image)
Steve Webb replies: For the last 15 years, the age of 55 has been an important one when it comes to pensions.
For most people, this has been the ‘normal minimum pension age’ – the first age at which you are allowed by HMRC to take money out of a pension pot without facing nasty tax penalties.
When the age 55 was set, male state pension age was still 65. It was felt that allowing people to access their money up to ten years before state pension age would give them the flexibility they needed and a bit more choice around their retirement plans.
This raises the question of what happens when state pension ages rise.
When the Government announced the introduction of ‘pension freedoms’ in 2014, they indicated that the NMPA would in future rise as state pension ages rise.
Steve Webb: Find out how to ask the former Pensions Minister a question about your retirement savings in the box below
Because the state pension age rise to 66 was coming quite soon, it was felt that increasing the NMPA to 56 at short notice would not be fair.
So the Government said that the NMPA would stay at 55 for now but would be increased to 57 when state pension age was increased to 67 in 2028.
Nothing much more was said on the subject for some years but in February of this year the Government confirmed its intentions to increase the NMPA to 57 in April 2028 and issued a consultation on how exactly this would work.
Crucially, under the Government’s plans, some existing pensions would retain an NMPA of 55, whilst new pensions opened after the date of the consultation would generally have an NMPA of 57 from April 2028.
Whether or not existing pensions retain an age of 55 depends on the rules of the current scheme and there is some debate about what the government intends.
In principle, if your current pension has an age of 55, then you would be able to retain it as long as you didn’t transfer out your individual pot.
But if the rules of your current pension say – as many do- that you can access your pension from ‘normal minimum pension age’, then it is not clear if this means that when the NMPA increases to 57, so will your NMPA.
The consultation also says that individual pension providers and pension schemes can ‘go early’ if they wish. In other words, they can raise the NMPA for their scheme to 57 before the 6 April 2028 deadline.
As someone in your late 40, you are absolutely right to be thinking about how this will impact you.
What is the lifetime allowance?
This is the total amount you can hold in pensions without facing a potential tax penalty, writes This is Money.
For a defined contribution or personal pension it is the total pot, so includes any contributions you or your employer make and the investment growth.
For a final salary or other defined benefit pension it is worked out by multiplying your expected annual pension by 20.
The lifetime allowance affects an individual, so they would need to add together all their pensions to see if they are at risk of going over it.
In his recent Budget, Chancellor Rishi Sunak announced this allowance will remain at £1,073,100 until 2026.
The move will save an estimated £250million a year.
But it will affect higher earners who are still saving for retirement – including those who saved hard early on and whose investments have done well, and those in final salary pension schemes like doctors and headteachers. Read more here.
Obviously I have not read the rules of your scheme, but in principle if you are 55 in late March 2028 and your scheme currently allows access at 55, then unless your scheme decides to ‘go early’ in raising its NMPA you should be able to access your money at age 55.
But there is a significant risk that if you leave it another week – to 6 April 2028 – that you may find you can then only access your money at age 57.
The Government has yet to finalise its plans, and it is to be hoped that it will clear up some of the ambiguity about how this will all work.
But in the meantime, anyone thinking of transferring their individual pension pot out of an arrangement with an access age of 55 (perhaps via pension consolidation or through a DB transfer) should think very carefully about whether they are throwing away the ability to access their pension at 55.
Finally, I should mention that given your year of birth, there is a chance that your state pension age might turn out to be higher than 67.
Although the current legislation does indeed indicate an age of 67 at the moment, it is widely expected that the move to 68 could be brought forward and the sorts of dates being mooted (for example in the ‘Cridland’ review of state pension ages) could potentially affect people of your generation.
Any change would probably come too late to affect the age at which you can access your private pension, but you may have to wait a bit longer than you expect for your state pension.
Finally, I should say that although I’m delighted to hear that you have a £1million-plus pension, the issues around accessing it would be relevant to anyone saving through a pension, no matter how large the size of their pot.
Ask Steve Webb a pension question
Former Pensions Minister Steve Webb is This Is Money’s Agony Uncle.
He is ready to answer your questions, whether you are still saving, in the process of stopping work, or juggling your finances in retirement.
Steve left the Department of Work and Pensions after the May 2015 election. He is now a partner at actuary and consulting firm Lane Clark & Peacock.
If you would like to ask Steve a question about pensions, please email him at [email protected].
Steve will do his best to reply to your message in a forthcoming column, but he won’t be able to answer everyone or correspond privately with readers. Nothing in his replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Steve is unable to answer your question, you can also contact The Pensions Advisory Service, a Government-backed organisation which gives free help to the public. TPAS can be found here and its number is 0800 011 3797.
Steve receives many questions about state pension forecasts and COPE – the Contracted Out Pension Equivalent. If you are writing to Steve on this topic, he responds to a typical reader question here. It includes links to Steve’s several earlier columns about state pension forecasts and contracting out, which might be helpful.
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