Pension: Expert gives advice on preparing for retirement
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Many people have aspirations of retiring early and not having to work into their mid-to-late sixties as they wait for their state pension to come in. However, pension age changes will make it more difficult for people to access their retirement funds sooner.
This is because the normal minimum pension age (NMPA) is changing, forcing Britons who want to access their pension pots early to wait an extra two years.
The NMPA is the minimum age at which most people can access their retirement savings without incurring an unauthorised payment tax charge.
Currently, the NMPA sits at age 55, but it will increase to 57 from April 6, 2028.
The increase will be implemented to fall in line with the rise in state pension age from 66 to 67, which is also set for 2028.
The Government has stated that the change will support their fuller working lives agenda.
They also believe it will bring indirect benefits to the economy through increased labour market participation, while also helping to ensure pension savings provide for later life.
That final point is key, as people having to wait an extra two years could mean their savings take them further into retirement.
The NMPA was first introduced in 2006 and was later increased from age 50 to age 55 in 2010.
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In 2014, following the consultation on ‘Freedom and Choice in Pensions’, the Government announced the next increase to 57.
Who will be affected?
This change will not affect people who are closer to reaching their NMPA, as anyone turning 55 in the next five years will still be able to access their funds at this time.
However, the changes will impact people enrolled in registered pension schemes who do not turn 55 until after April 5, 2028.
These people will then have to wait an extra two years if they wish to draw from their retirement savings early.
Of course, many people cannot afford to retire early as they have not built up a sufficient pension pot yet, so the change from 55 to 57 would be immaterial to them.
But for those who have made retiring early a priority and had their sights set on stopping work at 55, the NMPA increase could throw a spanner into the works.
It is possible that some people may be able to avoid the NMPA hike, depending on their individual scheme.
Some schemes offer an unqualified right to a protected NMPA of 55, which would grant an individual the ability to draw their cash at this age, even after the increase kicks in.
However, the deadline to transfer to one of these schemes has already passed, meaning anyone who did not already have an unqualified right to an NMPA of 55 as of November 4, 2021 cannot change this now.
Members of the firefighters, police and armed forces public service schemes will not be affected by the increase.
Naturally, scheme administrators of registered pension schemes will be impacted, as they must modify their systems to take account of the new NMPA.
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