Turning 55 before 2028? Pension access questions answered

Changes to the minimum age you can access a pension are due in April 2028, pushing the number up from 55 to 57.

The question of what happens to people born between April 1971 and April 1973, who would previously have had access from a younger age, is still to be confirmed but we’ve now had draft regulations which give an indication of the current thinking from HMRC.

What is the change?

From 6 April 2028 the normal minimum pension age (NMPA) is set to increase from the current threshold of 55 to 57. This means anyone born before 6 April 1971 can still access their pension benefits once they reach 55, but those born on or after 6 April 1973 will not be able to access their pension savings until they are aged 57.

What if you’ve already accessed your pension and you’re under 57?

Those born between 6 April 1971 and 5 April 1973 (and therefore aged 55 or 56 on 6 April 2028) who have already moved funds into drawdown can take an income from their drawdown funds when they want. Likewise, if they are receiving an annuity or a pension from a defined benefit scheme then this can continue.

However, under current plans, they will not be allowed to move any new money into drawdown funds from 6 April 2028, even if they have previously accessed their pension, taken tax-free cash and moved funds into drawdown. They also cannot set up a new annuity or start taking a pension from a defined benefit pension scheme until they reach age 57.

What does this mean in practice?

Those who have set up plans to regularly access their pension money – for example by taking a series of ad-hoc lump sums (uncrystallised funds pension lump sums, or UFPLSs) or setting up phased or drip-feed drawdown – will find their plans are disrupted by these new rules. They will be forced to put these phased payments plans on hold in April 2028.

This could create an incentive for those who are age 55 or 56 in April 2028 – in a bid to retain as much flexibility as possible – to access their entire pension savings, and in doing so take their full entitlement to tax-free cash and move the remainder into drawdown.

Doing so will mean they will have more flexibility to take higher income payments before they reach age 57, rather than be restricted to the drawdown funds they moved before April 2028. But it could mean missing out on additional tax-free cash.

Although individuals can take their entire pension pot in one go, many choose to access only part of the pot if they don’t need all their tax-free cash immediately. That way they can leave the untouched pension to grow in a tax-free environment, meaning their tax-free amount should also grow.

Why could the tax-free amount grow?

Let’s say Kath has a £100,000 pension pot. If she takes all her entitlement, she receives £25,000 of tax-free cash and the remainder moves into drawdown, where she can take a taxed income when she wants. She cannot take any more tax-free cash from that pension.

If Kath doesn’t need all the tax-free cash immediately, she could take only £20,000 – £5,000 will be tax-free and £15,000 can move to drawdown. That leaves £80,000 untouched and continuing to grow. If that £80,000 continued to grow in her pension to £90,000, her next slice of tax-free cash would be £22,500 (25% of £90,000). This gives her a higher total tax-free cash amount of £27,500 instead of £25,000 if it was taken as a single lump sum.

The tax-free cash from your pension is the smaller of 25% of your pot or £268,275. So, if you have a large pension pot, it’s important to watch for that £268,275 ceiling as well.

Will there be further increases in the minimum pensions age?

There is currently no legislation on a further increase in the NMPA. However, there has been some speculation recently about an increase earlier than had previously been anticipated, potentially linked to hikes in the state pension age being brought forward.

The point at which you qualify for the state pension is itself set to increase from 66 to 67 in April 2028, with a further jump to 68 planned for the mid-2040s. However, there are suggestions this could be brought forward to the 2030s.

A principle has been established of maintaining a 10-year gap between the NMPA and the state pension age. This has prompted speculation about accompanying changes to the minimum pension age, with some suggestions it could even move to 60.

However, it is important not to react to rumours and wait for confirmation. Under the Pensions Act 2014, the government committed to the idea of giving at least 10-years notice before changing the state pension age to enable people to plan effectively for their retirement.

Though there is no absolute guarantee this guideline will be stuck to and it is worth keeping tabs on the latest developments, you shouldn’t change your plans based on today’s headlines.