The changing working lifetime in developed economies has been well documented for a little while now. Gone are the days when the majority of the public worked from age 16 to 65, retired, and did nothing further with an alternative early or flexible retirement only reserved for the privileged few.
Thankfully in today’s modern Britain, many people have more control over their own destinies, and are no longer beholden to an all powerful taskmaster or a lack of opportunity.
Many social factors have led to a changing retirement; people are healthier and living longer, working practices are safer than before, and the type of work we do is still becoming ever more service & technology based.
All of which means many people are aiming to retire early, or perhaps retire ‘flexibly’ would be a better way to put it. It might not be that one aims to retire at age 55 and cease work completely, but that the approach to work changes. Perhaps different work is undertaken, or fewer hours are worked, or even a combination of both.
“Age 55 has become a new target.”
Any which way you approach it, age 55 has become a new target age. But why? Yes, lifestyles are changing, social expectation is changing, but why age 55 specifically? Well, not for the first time, the Exchequer has a lot to answer for! Only this time, the changes introduced are largely seen as positive.
Before I provide full details, I should warn you that I have a strange fascination with pension rule changes. Over time though, you will be happy learn my colleagues have made it abundantly clear that very few others share this interest. So rather than provide a full history of pensions from the old age pensions act (1908) to the present day, I will highlight just two pertinent dates.
In April 2010 the minimum pension age – the earliest point at which pension savers could access their hard earned funds – was increased to age 55. This meant that 55 was the key age when the ‘Pension Flexibility’ rules were introduced in April 2015.
The Pension flexibility rules are the changes that allow all the other developments in lifestyle, health, working patterns etc to have a real impact on the nation’s retirement plans. In summary, for the majority, from age 55 the rules allow you to do what you want with your personal pension funds. The exception to this is some occupational schemes where different rules apply, such as NHS, other public sector schemes, and private sector defined benefit schemes.
Of course, there may be tax consequences, or the danger of running out of money in old age if you are not careful – so always take advice to ensure you do not get things wrong – but the point is that as a saver you now have access to your pension funds in a manner completely under your control.
This has resulted in more and more people targeting age 55 as a point to access pension funds, either to provide funds in retirement, or, more commonly, as a means of providing supplementary funds whilst they work fewer hours. Similarly, some may access funds to ‘tide them over’ until an occupational scheme starts and/or the State pension starts sometime later.
Yet further people may withdraw a capital amount to pay off a debt (the mortgage, maybe?) or finance a once in a lifetime holiday or project.
“So, life is great, pensions are great, and we can all enjoy full financial freedom from age 55, right?
Well, no, unfortunately. Or not without some careful planning, anyway.”
The first point to make is obvious, but bears repeating. At whatever age you start to draw funds from a pension plan – or indeed, any type for savings – you must ensure that you
have enough money to provide for the rest of your life.
The second point, is that the pension rules are changing. Age 55 will no longer be the magic number. From April 2028, that number becomes 57. It has previously been suggested that this pension access age should be linked to the State Pension Age – i.e. 10 years before one’s state pension starts. Whilst this is not set in stone as yet, it is quite plausible to think that this link could come in to force in future, increasing the pension access age to 58, and who knows what age beyond that.
Therefore, anyone born after April 1973 (currently aged 47 or under) will have to wait at least another two years before accessing their pension.
Thankfully, this doesn’t necessarily mean that a plan to retire or change working habits from age 55 has to be delayed, however it does mean that due consideration must be given to how life will be funded from age 55 to age 57, and thereafter.
Due consideration must be given to supplementary investment options to ensure funds are available without a single reliance upon the pension – and of course any additional investments should be made with the focus of maximising available tax reliefs and allowances, as well as private sector defined benefit schemes.
I do believe that planning for a change in lifestyle from the age 55 will still be very much possible for many people. Just ensure that you have someone in your corner to advise you and help you adapt to the ever changing legislative environment – and whatever else life throws at you!
If you would like any further information or an adviser to contact you regarding your retirement planning needs, please get in touch on 0117 450 1300.