In 2014 the government announced plans to increase the minimum pension age from 55 to 57 from 2028. This proposal was introduced to reflect the fact that we’re now living longer. But also to encourage people to remain in work and to help make sure pension savings remained untouched for as long as possible and were used to provide for later life.
On 3 September 2020, the government confirmed that they still plan on making this change and it’ll be legislated for in due course.
We look at what this could mean for your retirement and offer three top tips if you’re looking to retire early.
This article isn’t personal advice. Pension and tax rules can change and any benefits depend on your circumstances. If you’re not sure what the best course of action is for your situation, please ask for advice.
Will the change affect me?
Anyone born before 1 January 1973 with a private pension, like the HL SIPP, is likely to still be able to access their pension from age 55. Anyone born on or after this date could be affected by the rule change.
There’s no doubting that the retirement landscape has changed dramatically. These days there’s no set age for retiring anymore. Lots of us will be working well past the age we can access our pensions. In fact on average, men don’t stop work until they reach 65 and women at age 64.
Depending on how much you enjoy your job, this outlook might seem bleak. But all is not lost. There are a few things you can do to help you retire on your own terms.
Tip 1. Pay more money into your pension if you can afford to
A little goes a long way. Paying in as much as you can into your pension could give you more chance of retiring when you plan to.
Even adding small amounts can make a huge difference overtime. Let’s say you add an extra £50 a month. Across 10 years that’s £6,000 more in your pension. And that’s not even taking into account tax relief from the government. When you pay into a pension the government will add 20% in basic rate tax relief. So you’d actually end up with £7,500 in your pension.
If you’re a higher earner you can claim back up to a further 25% tax relief through your tax return (or up to a further 26% if you’re a Scottish tax payer). Remember though, to benefit from tax relief, your personal pension contributions can’t exceed your earnings (or £3,600, if greater) and you need to be under 75.
You can use a pension calculator to see how adding some more each month could significantly boost your overall retirement pot.
Tip 2. Don’t ignore your workplace pension
As part of the government's automatic enrolment programme, millions of workers are automatically enrolled into a workplace pension. If eligible, this means your employer will regularly pay into a pension on your behalf and you pay in too.
You have the option to opt out of the workplace pension, but if you do, you’ll essentially be missing out on free money from your employer.
You can even ask your employer if they’d be willing to increase how much they pay in, but you’d expect to have to pay in more too. Employer contributions are just a helping hand though. You need to make sure you’re making your own significant contributions if you’re dreaming of finishing work early.
Tip 3. Consider how long you need your pension to last
None of us can predict the future or know how long we’re going to live. But it’s important that our pension pots last as long as we need them to.
Now that people are living longer, retirement could last 30 years or more. It’s worth planning for a long retirement to help avoid the risk of running out of money too soon.
If you plan to take a flexible payment (through drawdown or as a lump sum), it’s a good idea to request an illustration first. It’ll show you how your withdrawals could affect how long your pension might last, and how sustainable they may, or may not, be.
You can also choose to take a secure income from your pension. This is known as an annuity. An annuity will give you a guaranteed income for life, so you won’t have to worry about trying to make your retirement pot last.
Although, for lots of people it might not be appropriate to take out an annuity in the early years of retirement. That’s because you tend to receive a higher regular income the older you are. You could consider buying small tranches of annuities using portions of your pension as you grow older.
Remember though, there’s no guarantee the rate you get in the future will be higher than the rate you could get now. Rates only last for a specific period and continually change. Once set up annuities cannot usually be changed or cancelled.
Help with your retirement options
What you do with your pension is an important decision. We strongly recommend you understand all your options and check that the option you choose is right for your circumstances. Take advice or get guidance if you’re unsure.
When you turn 50, the government provides a free and impartial service to help you understand your retirement options. Find out more on Pension Wise.
We offer a range of information and support to help you plan your own finances. We also have an advisory service that can help you achieve your goals.
Dreaming of an early retirement?
Download this essential guide for some more top tips to help you retire on your own terms