Introduced in April 2015 by former Chancellor of the Exchequer, George Osborne, the Pension Freedom rules have revolutionised the way that you can take your pension savings.
Rather than simply taking a lump sum and buying an Annuity, it’s now possible to access your pension pot in different ways, giving you increased flexibility.
However, following concerns that people are accessing their pension savings without advice and potentially running out of money in later life, a leading financial organisation has called for the Pension Freedoms age to be raised from 55 to 57.
Keep reading to find out why this change is being suggested, and what it could mean for you.
ABI calls for Pension Freedoms age to rise to 57
As part of a range of safeguards to protect consumers, the Association of British Insurers (ABI) has called on the government to increase the Pension Freedoms age from 55 to 57.
Speaking at a recent conference, Yvonne Braun, ABI’s director of long-term savings policy, noted the age change had been part of the government’s original plan in 2015 when the new pension flexibility rules were introduced, but has not been changed since.
She said: “The minimum pension age should be increased from 55 to 57 over the near term. This was already part of the government’s original plan in 2015 but has not been legislated for.
“Government should then review the minimum age regularly.”
The Pension Freedom rules resulted in a reduction in demand for annuities, an increase in drawdown sales, and a rise in transfers out of so-called ‘gold-plated’ retirement plans as people looked to get immediate access to their savings.
However, while the State Pension age has been steadily rising and will reach 67 between 2026 and 2028, the age at which savers can access their pensions has remained unchanged at 55.
Ms Braun said increasing the age at which savers could access their pensions was one of four safeguards the government should introduce in this area, after several risks were identified by the ABI, “especially around unsustainable withdrawal rates in non-advised drawdown; the large number of withdrawals as single lump sums, particularly at early ages; and customer vulnerability, particularly in later life”.
Savers should also have a ‘later life’ review at age 75
In recent years, there has been a trend towards people taking larger proportions of their pension pot through regular withdrawal. Indeed, 44% of customers took more than 8% per year in the year to March 2019.
Ms Braun added: “At the same time, a growing number are unadvised. Other evidence shows consumers are making complex choices in drawdown without fully understanding how it works.
“Freedom and choice have also led to a surge of transfers from defined benefit to defined contribution schemes which has exposed huge flaws in the advice market.”
Due to this, the ABI has suggested that a ‘later life review’ of retirement options should be introduced at age 75.
The full ABI proposals will be published in 2020.
Any change to the Pension Freedoms age should be communicated immediately
When Pension Freedoms were introduced in 2015, the government suggested they would increase the age at which pensions could be accessed from age 55 as the State Pension age increased, keeping it ten years below State Pension age.
So, in response to the recent proposal from a leading think tank to increase the State Pension age to 75, a leading insurer is urging the government to confirm that Pension Freedoms will be available from age 55 even if the State Pension age increases further.
While the government has denied plans to increase the State Pension age to 75, Aegon believes “even less severe increases could come as a double blow” if these were combined with an increase in the minimum age for accessing private pensions.
If the State Pension age was increased to 75, this would prevent access to private or workplace pensions until age 65, affecting the retirement plans of millions.
Steven Cameron, pensions director at Aegon, said: “While the Government has denied any plans to increase the State Pension age to 75, the proposals from Centre for Social Justice (CSJ) have brought the prospect of an ever-increasing State Pension age into the spotlight.
“For many, the State Pension is a key part of their retirement income and people need lengthy advance notice of any planned increase.
“Of course, those with private or workplace pensions don’t need to wait until State Pension age to retire and can draw their private pension from an earlier age, currently 55. But just as people need lengthy advance notice of any increase in State Pension age, it’s vital that they also know if there is any plan to increase the minimum age for accessing private pensions.
“We would like the government to confirm that they have no plans to increase the age 55 access point and that any future increase would only be made with a minimum of ten years’ notice.”
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