Six years can sound a lifetime but in the context of pension saving, which ideally takes place over several decades, it is a relatively short time span.
Employers should therefore be acting now to make employees aware of important changes to pension rules being introduced in April 2028 that raise the ages at which they may become entitled to access their pension savings or payments.
Many employees will find themselves hit by a double whammy that very same month. The age at which the State Pension becomes payable will rise from 66 to 67, and the age at which many can access their private and workplace pension savings will increase from 55 to 57.
It is the changes to the private pension rules that seem to have gone particularly under the radar — even though they were first mentioned by the government in 2014. And they could be especially significant for manual workers, who might not find it that easy to simply work on for an extra couple of years.
Even those in sedentary occupations need to be giving some thought to their retirement plans, and at least telling their pension provider when they intend to retire.
The majority of pension forecasts issued by providers assume that members will retire at age 65 but, if the individuals concerned inform them otherwise, they can change the date and tweak the investment strategy accordingly.
Scheme administrators of registered pension schemes will need to modify their systems to accommodate the age changes, and employers also need to consider how their succession planning might be affected — because some employees may now remain in the workforce for longer than originally intended.
Which private pensions are affected?
Whether employees are affected by the age hike to 57 all boils down to whether the pension scheme has included in its scheme rules on 11 February 2021 an “unqualified right” for members to retire at age 55.
If it has, then the scheme may be able to protect that age for existing members and any others that joined before 4 November 2021.
In some cases, individual members who were already in the process of transferring to such a scheme before 4 November 2021 may still benefit from being able to access their pension savings or benefits from age 55.
It should be made clear that this isn’t all simply about the general ability of members to access pension benefits at age 55, but about them being able to do so without needing the consent of the scheme trustees, the scheme administrator or the employer.
The unqualified right is a feature more commonly found in occupational or company pension schemes than in personal pensions, self-invested personal pensions (SIPPs) or group personal pensions (GPPs).
Those in these latter categories of pensions will be unaffected by the rule changes if they reach 57 by 6 April 2028 but anyone born after 5 April 1973 will not be able to access or start using their pension savings until age 57 at the earliest unless their plan has a protected pension age as described above.
Those born between 5 April 1971 and 5 April 1973 will be able to start using their pension saving from their 55th birthday — as long as they do so before 6 April 2028. But, if they decide to wait until after this date, they won’t be able to access their funds until their 57th birthday unless their plan has a protected pension age as described above.
Part of an overall communications programme
When imparting knowledge of these changes, employers should also be looking to use the communications exercise as an opportunity to raise awareness of some of the broader messages about pensions saving generally.
It is certainly concerning that many employees are not aware of, or have given little thought to, the impending age limit rises for either State or private pensions, but it is even more worrying that a large proportion of these have barely thought about retirement planning at all.
Encouraging employees to gradually increase how much they put towards their workplace pension savings, even by only an extra 1% each year, can generate real benefits in the future.
If you require any further information or advice about the pension age rises or about any other aspects of pensions, then please don’t hesitate to contact Chase de Vere.
The value of your investment can fall as well as rise and is not guaranteed.
Content correct at the time of writing and is intended for general information only and should not be construed as advice.