Freedom and Choice; when you’re 57

You may have to wait a little longer for your Lamborghini. Against a backdrop of difficult news over the last year, I thought I’d give it to you straight.

Why the delay? Well, last week the government issued a consultation on its intention to increase Minimum Pension Age (MPA – the age at which most pension members can access their pensions without incurring an unauthorised payments tax charge) from age 55 to age 57 on 6 April 2028. The change was first announced in 2014 and will affect workers currently aged 49 or younger. It is designed to encourage individuals to save longer for their retirement, and so help ensure financial security in later life. Cashing in your pension pot for a dream car may need to be put on hold. The increase will not apply to those who are members of the firefighters, police and armed forces public service pension schemes.

MPA was last increased in 2010 from 50 to 55. As happened in 2010, the government proposes to offer protection from the increase to members who have a right under the scheme rules to take their pension benefits before age 57 without consent. In this instance, protection would cover benefits built up both before and after 6 April 2028 to avoid the complexity of administering a split pension. As protection would not apply where no existing right was held, an individual could have a MPA of 55 in one scheme and 57 in another. In contrast with the protection offered in 2010, members will be able to draw benefits under their scheme, even if they are still working.

Employers and trustees will need to give thought to implementation of the change at a scheme level, subject to the overriding requirement that MPA is 57 by 2028.  For defined benefit schemes, trustees need to start asking administrators now, how they will comply.

There is a possibility that some employees will rush to retire before the step-up kicks in. Therefore, for trustees, communication with members will be important, to ensure that those who had planned to retire or take flexible drawdown at age 55 in 2028 can make informed decisions about their benefits. For those affected, failure to adhere to the MPA conditions could be costly with financial penalties for non-compliance.

The change mirrors increases in the State Pension Age (SPA) which in 2014 had been increased to age 67, reflecting increasing life expectancy. In its consultation, the government confirmed its position remains that it is appropriate for the MPA to remain around 10 years earlier than SPA.  The government’s next review of SPA is due by July 2023 and this could also lead to another review of MPA.

For many members, retiring at 55 or 57 might be a pipe dream, but for those planning to buy their dream car there is some good news. Although you might have to wait a little longer for your Lamborghini, due to increasing life expectancy, you’re still expected to have the same numbers of years to enjoy driving around in it.