Private pension age to rise to 57 from 55 as millions in their 40s wait longer to access cash

MILLIONS of people in their forties will have to wait an extra two years to access private pension funds.

The government has today confirmed workers will have to wait until they're 57 to access savings from 2028, up from the current age of 55.

The increase was initially announced in 2014, but as it hasn't yet been legislated for it led to uncertainty over whether it would still take place.

But economic secretary to the Treasury, John Glen, has today confirmed the original plans will still go ahead – with it being put into legislation in "due course".

The age rise applies to private pensions, which includes most workplace pensions, such as defined contribution (DC) pensions – schemes you contribute to yourself alongside your employer – and defined benefit (DB) schemes – where your pension is based on your salary.

Personal or stakeholder pensions also fall under this bracket. But it's worth pointing out some pension providers, typically DB schemes, will set age limits higher than the standard 55 already.

It's thought 860,000 people currently aged between 46 and 47 will be hardest hit as they'll turn 55 in 2028.

Millions more younger workers will also be affected but it's unlikely they'll have had firm plans in place over when to access their pensions.

Since the so-called pension freedom changes took force in April 2015 workers have been able to take 25% of their pension as a tax-free lump sum for the first time.

The idea was to allow people more choice over what to do with their pension, rather than taking often poor value annuities.

What are the different types of pension?

WE round-up the main types of pension and how they differ:

  • Personal pension or self-invested personal pension (Sipp) – This is probably the most flexible type of pension as you can choose your own provider and how much you invest.
  • Workplace pension – The Government has made it so it's compulsory for employers to automatically enrol you in your workplace pension, unless you choose to opt out. These so-called defined contribution (DC) pensions are usually chosen by your employer and you won't be able to change it. Minimum contributions rose to 8% in April 2019, with employees now paying in 5% and employers contributing 3%. This is up from the 5% of contributions workers and companies were required to pay in previously, where employees contributed 3% and employers 2%.
  • Final salary pension – This is a also a workplace pension but here, what you get in retirement is decided based on your salary, and you'll be paid a set amount each year on retiring. It's often referred to as a gold-plated pension or a defined benefit (DB) pension. But they're not typically offered by employers anymore.
  • New state pension – This is what the state pays to those who reach state pension age after April 6 2016. The maximum payout is £175.20 a week and you'll need 35 years of national insurance contributions to get this. You also need at least ten years' worth of national insurance contributions to qualify.
  • Basic state pension – If you reached the state pension age on or before April 2016, you'll get the basic state pension. The full amount is £134.25 per week and you'll need 30 years of national insurance contributions to get this. If you have the basic state pension you may also get a top-up from what's known as the additional or second state pension. Those who have built up national insurance contributions under both the basic and new state pensions will get a combination of both schemes.

But there are fears scammers are preying on savers accessing pensions from age 55, and it's something the Work and Pensions Committee launched an inquiry into earlier this year.

There has also been widespread concern that people are spending their savings too quickly and will run out of money to live on.

In a written ministerial statement Mr Glen said: "In 2014 the government announced it would increase the minimum pension age to 57 from 2028, reflecting trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life.

"That announcement set out the timetable for this change well in advance to enable people to make financial plans and will be legislated for in due course."

Steven Cameron, pensions director at Aegon, added: "This latest announcement confirms the change will happen meaning those retiring in future will have to wait longer to access their pension.

"It will be particularly impactful on those who were due to reach their 55th birthday just after the cut off, sometime in 2028."

The age at which you can access the state pension is separate. This differs depending on when you were born. It's currently set to increase to 67 for men and women by 2028, and to 68 between 2044 and 2046.

Traditionally, the private pension access age was designed to fall ten years before state pension age.

Mr Cameron adds that it's "imperative" this change is now communicated to savers to avoid a repeat of a situation that's left many women finding out too late that their state pension age was increasing from 60 to 66.

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