Aged 40? Access to pension money may be blocked until 63 – or later

When will you retire? Or at least, when do you hope to start dipping into your savings pot to enable you to pull back from the relentless 9 to 5.

Most of us are coming to terms with a later state pension age: both Conservative and Labour governments have pushed through plans that will see us all work longer with minimal resistance.

But what about the age at which you can access your own pension money?

Up until 2007, turning 50 meant you had the option to start drawing on your money and, crucially, take out 25pc of it as a tax-free lump sum. But Gordon Brown, then Chancellor, raised the qualifying age to 55 as part of sweeping, and mostly welcome, changes to the pensions system.

That overhaul was dwarfed by the changes announced by George Osborne, today’s Chancellor, in the Budget in March. He dramatically improved the appeal of pension saving by unveiling plans to give total pension freedom from next year, at least once they reach the qualifying age of 55.

The plans were welcomed by The Telegraph. But there is a rub for the younger half of the population.

As reported at the time, it is proposed that the age of access will rise to 57 in 2028, affecting those aged 40 or under today. No exact date was given because a consultation has to take place first.

What was less widely reported was that the Government also said it “was keen to hear views from respondents about whether the minimum pension age should rise further to allow more time for people to accumulate pension wealth before they reach retirement.”

Guidance for this later retirement was even stated, suggesting the pension access age should be “five years below the State Pension age instead of ten years”.

For those aged 40, the state pension age under current intentions is 68, tweaked from 67 under Labour’s plans. It could be later. That could mean access to your pension pot is delayed until 63.

The Government, which gets a gold star from international financial markets (and cheaper borrowing rates) every time it raises pension ages, has signalled an intention to link the state pension age to life expectancy. Again, the detail is yet to be decided on that, but some academics have speculated that the retirement age for younger Britons could be early seventies or later.

Once again, these ever-moving goalposts undermine the confidence among younger Britons to trust pensions as a savings product.

Many forty-somethings have built financial planning around their pensions, such as using a tax-free lump sum to help clear the mortgage. Yes, pensions should be used to fund a retirement but our financial and working lives have grown more complicated, with many planning to work later. Pensions, which offer the best tax breaks, have inevitably featured in that planning despite the ongoing uncertainty.

Many will be wondering that despite the generous tax breaks on pensions, whether it is better to rely on SIPPS, especially now George has handed everyone a greater annual allowance of £15,000 a year.

Finally, it would be remiss of me not to mention also that the original Budget document made an error by suggesting the access age would rise from 55 to 57 in 2018, rather than the intentioned 2028. I would not suggest that was anything other than an innocent typo. But savers should certainly be braced for more shifts in the numbers on retirement.

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Source: The Telegraph