HM Treasury has published a consultation about raising the minimum age for people to access their pensions to 57 from 55.
Such plans had already been set out by the UK government in September 2020, alongside the rise in the state pension age to 67, starting from April 2028.
But according to Steve Webb, partner at advisory firm LCP, the move creates “second class pension schemes”.
This is because for pensions that were already opened by 11 February 2021, members will be able to retain the right to access their pots at age 55.
But for any schemes opened from 12 February 2021 onwards, the minimum age to take advantage of pension freedoms will rise to 57 in 2028.
Webb added: “Whilst the increase in the normal minimum pension age from 55 to 57 had been widely trailed, the way in which the change will be implemented could be complex for savers and for schemes and risks creating ‘second class’ pensions with tougher access rules depending on when they were opened.
“There will be a need for clear communication with members to make sure they understand the different rules which may apply to their different pensions. As we move towards an era of pension consolidation, members will have to be careful not to accidentally throw away protected rights to access a pension at 55.”
Block transfers
But, while Andrew Tully, technical director at Canada Life, welcomes the move, he is “disappointed” in the government’s continuation of the so-called ‘block transfer’ rules.
This means that individuals will be able to retain protection as a result of a block transfer, where at least two or more people move from the same transferring scheme to the same destination scheme at the same time.
He said: “This confirmation of the timing of the increase in the normal minimum pension age will be welcome to individuals and advisers and give time for appropriate planning over the next seven years. A protection regime will benefit those who currently have a right to take benefits before age 57, but it is disappointing to see the government propose a continuation of the existing ‘block transfer’ rules.
“These rules are complex and can prevent individuals benefitting from the pension freedoms, by taking the most suitable option for their circumstances. Removing the block transfer rules and allowing those affected to keep their entitlement to a lower pension age on transfer would be a positive move.”
Think carefully
Many people will be unhappy with this decision, but there is a silver lining, Tom Selby, senior analyst at AJ Bell said.
“While this may come as a blow to some people, it is important to remember that just because you can access your pension doesn’t mean you should. It’s worth bearing in mind that someone in their mid-50s might have another 35 years or more to live.
“Anyone accessing their fund this early, therefore, needs to think carefully about the sustainability of any withdrawals and the impact they might have on their lifestyle as they grow older.”
