Everyone is looking to the changes that are needed to get the British economy back on track. Money needs to be saved everywhere and anywhere. To be fair, the ageing population has long since been a concern of successive governments. Therefore, there have been intense discussions to change the pension freedoms age from 55 to 57. The government has now confirmed that this change will go ahead in 2028.
What is the pension freedoms age?
In April 2015, direct contribution (DC) schemes began to enjoy several pension freedoms rules. The pension freedoms age under these rules was 55. This means, from the age of 55, you can choose what to do with your pension, such as taking early retirement.
Before these changes, traditionally, people with a DC pension would buy an annuity and then converting pension savings to an income. Under new rules, you could take 25% as a lump sum tax-free at the age of 55. You then had a choice to immediately take the remaining 75% as an income, and so retire, or wait and take the income later. The amount of flexible withdrawal from pensions since 2015 has exceeded £37 billion.
Why move the age from 55 to 57?
The argument for the change comes in terms of longevity of life. In other words, we are living longer; therefore, we need to work for longer. It is also a means of making sure that pensions will last longer into our lives and prevent pension poverty. For a government looking to preserve government funds, you have to keep as many people out of pension poverty and without need for a national safety net.
How will these changes impact you?
If you are 48 years old, you could still have the option of retiring at the age of 55. However, anyone younger will be expected to take early retirement two years later. However, beyond this, there are few details for how the government will implement the age hike. Therefore, it is difficult for industry experts to understand how to advise people. It may be that there is a fixed date when this applies for people 48 years and younger to lose out on two years of retired life.
The content in this article was correct on 15th September 2020. You should not rely on this article to make important financial decisions. Teachers Financial Planning offers advice on your teachers’ pension scheme, as well as financial matters in general. Please use the contact form below to arrange an informal chat with an advisor and see how we can help you.