HM Treasury has been urged to clarify its plans for increasing the age at which savers can access pension freedoms, after it accelerated the rate at which the state pension age will increase in July.
The normal minimum pension age is currently 55, but is set to rise to 57 in 2028 when the state pension age increases from 66 to 67.
From there the government had planned to maintain a gap of 10 years between the two milestones, but it is yet to confirm if the acceleration in state pension age will also affect the normal minimum pension age.
By doing this, the government mitigates, to an extent, the risk of people spending all of their pot and running out of money in retirement
Tom Selby, AJ Bell
When asked, a spokesperson for the Treasury reiterated the government plans outlined in 2014, but did not offer any further insight.
“We know that people need to be given adequate notice of any changes affecting their pension,” the spokesperson said.
“The government announced in 2014 that the normal minimum pension age would be raised to 57 in 2028 and will remain 10 years below the state pension age from then onwards.”
Clear communication is needed
While this is a perfectly appropriate intention, the danger for savers lies in the miscommunication of these changes, according to Steven Cameron, public affairs director at pensions provider Aegon.
Anyone not directly involved in the pensions industry “will not be aware” of the plans to change the normal minimum pension age.
“At some point that quiet intention needs to be turned into a public communication,” said Cameron. “The key is that we communicate this well in advance. We’ve seen the example of the Waspi women and the poor communication that the government gave.”
Most disruptive would be if the minimum pension age was raised to 56 when the state pension age begins increasing next year, although Cameron said this was unlikely.
But uncertainty around the 10-year link could still cause savers and providers problems with retirement planning unless quickly clarified, he said.
“Because it’s not in legislation right now it’s difficult for providers to actually tell people that you’ll have to wait until 57,” he said.
10-year gap makes sense
The motive for changing the normal minimum pension age may not be as strong for the Treasury as that for changing the state pension age, which has a significant impact on the nation’s balance sheet.
But experts agreed that the rationale for keeping the gap between the two to 10 years was sound.
Tom Selby, senior analyst at platform provider AJ Bell, said the pension freedoms access age should be linked to life expectancy.
“If people are living longer – and obviously there is some debate about this following the [2010] Marmot report – the age at which you can get at your pension savings should go up, too,” he said.
“By doing this, the government mitigates, to an extent, the risk of people spending all of their pot and running out of money in retirement.”
Admin poses problems
However, implementing the increases, which may also affect defined benefit members seeking to commute benefits into cash, could cause difficulties.
“It’s something that ought to happen, but care needs to be taken to eliminate additional administrative cost,” said Ian Neale, director at policy specialists Aries Insight, who agreed that a government clarification would be helpful.
Government follows Cridland on state pension age
The government has announced its intentions to implement the recommendations of the Cridland report, bringing the state pension age from 67 to 68 seven years ahead of schedule.
He said that the government may be unwilling to make constant tweaks to the normal minimum pension age, and providers could experience difficulties in adapting to the changes.
Neale said that it would also make sense for the government to raise the age at which tax relief on pension contributions ends, which currently stands at 75.
