Changes to pension access are coming and if you are under 47 and wanted to be retiring by age 55 then you might need to think again.
These types of rule changes are always something you need to be mindful of when saving into a pension. Governments over the years have always tinkered with pensions and that’s not ideal when a large chunk of your wealth is wrapped up in them.
So here is what’s happening and what you need to do next.
Why are pension access rules changing?
Actually, it was 2014 when the government at the time announced it planned to raise the minimum age for pension access to 57.
Nothing has really happened on this until recently when a Treasury Minister confirmed there are plans to put this into legislation.
It’s been confirmed that the pension access rule change will be made in 2028. So, in 2028 the minimum age you can access a pension will be 57. 2 years older than the current age of 55.
This will mainly impact those currently under 47 who had planned to access all or some of their pensions at 55.
So why the change?
Well, I for one are not too keen on the idea of governments telling you when you can access your money, and I definitely don’t like it when they make changes after you have already paid in.
But the government are doing this because of increased life expectancy. As we are now living longer, these changes will mean working for longer which in turn will hopefully ensure our pension savings last longer.
What to do about the new pension access rules
Unfortunately, this type of thing is something we always need to be wary of when building our financial plan.
The government will always have the power to change the rules on the products we use to save into. Pensions have certainly suffered more than most. Think State Pension Age changes (especially for women), Lifetime Allowance and Annual Allowance.
Having said that pensions still remain a fantastic way to save for your retirement because of the tax relief they give, and the extra top ups you get from your employer.
But like all things investing, I would definitely not put ‘all your eggs in one basket’. Diversification is key. That way if the government do change the rules in the future you have a backup option.
The backup option in this case will likely be ISAs for many.
Standard stocks and shares ISAs do not give any tax relief when you contribute, but they are tax free when you withdraw money. Plus, you can pretty much invest in the same types of investments that you can inside your pension.
In fact, ISAs have been less tampered with over the years compared to pensions, and their allowances have actually been increasing. Currently £20,000 per tax year per person.
If you are under 40 you could make use of the fairly new Lifetime ISA where the government do in fact pay a bonus on top of what you save. The downside to this is that you can’t access the ISA without penalty until age 60, unless you use the funds to buy your first home.
There are of course other investment options and as always when an important announcement has been made by the government it’s always a good opportunity to review your financial plan with your Financial Adviser to see whether there are changes that need to be made.
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