HMRC confirms new minimum pension age rules – check if you’re affected | Personal Finance | Finance

HMRC have confirmed changes to the minimum age Brits can access their pensions. The new proposals addressed in the official pension scheme newsletter reveal the new rules and when they will come into effect.

As of now, the minimum access age to access private or workplace pensions is 55. However, the age will rise to 57 from April 6, 2028. Experts have warned that those who have already made plans for their retirement income should start thinking about how they will deal with any income gap created by the changes.

Rachel Vahey, head of public policy at investment platform AJ Bell, said: “We have known for many years that the minimum age individuals can access their private pension savings is going to increase to age 57 from April 2028.

“But it has taken five long years for HMRC to finally provide impacted pension savers with crucial details on how this change will affect their retirement planning.

“Individuals born after April 1973 have to wait until they reach 57 to access their pension savings. But this much-anticipated update from HMRC clarifies what the impact will be for those born between April 1971 and April 1973 – particularly those who intend to access their pension in the next few years.”

The new transactional rules are as follows:

The normal minimum pension age (NMPA) will rise from age 55 to 57. Those who were born before 6 April 1971 can still access their pension benefits once they reach 55, but those born on or after 6 April 1973 will not be able to access their pension savings until they are aged 57.

However, for those caught in the middle, born between April 6, 1971 and April 5, 1973 and will be aged 55 or 56 on April 6, 2028 then if you have already moved funds into drawdown, you can take an income from your drawdown funds when you want.

Likewise, if you are receiving an annuity or a pension from a defined benefit scheme, then this can continue.

However, you will not be able to move any new money into drawdown funds even if you have already accessed your pensions, nor can you set up a new annuity or start taking a pension from a defined benefit pension scheme until reaching age 57.

If you regularly access your pension funds, you’ll be prevented from doing so by these new rules, and will have to put any phased payment plans on hold in April 2028, until your 57th birthday.

Ms Vahey said: “This will disrupt some pension savers’ pension plans, putting a stop to those taking regular ad-hoc lump sums or in phased drawdown. It will also encourage more people within this group to fully access all their pension funds from an earlier age rather than adopt a more measured phased approach.”

The expert, however, did further explain that the new rules aren’t all bad for those turning 55 or 56 in April 2028. She noted that it could create a “perverse incentive” for those affected to access their entire pension savings, taking their full entitlement to tax-free cash and moving the remainder into drawdown.

This will give you more flexibility to take higher income payments before reaching 57, rather than being restricted to the drawdown funds moved before April 2028.

While this option has its benefits, it also means missing out on additional tax-free cash.

She said: “Although individuals can take all their pension pot in one go, if they do not need all the tax-free cash immediately there’s some advantage in only accessing part of the pot. That way they can leave the untouched pension to grow in a tax-free environment, meaning their tax-free amount should also grow.

“For example, Kath has a £100,000 pension pot. If she takes all of her entitlement, she receives £25,000 tax-free cash and the remainder moves into drawdown from where she can take a taxed income when she wants. She cannot take any more tax-free cash from that pension.

“If Kath doesn’t need all the tax-free cash immediately, she could take only £20,000 – £5,000 will be tax-free and £15,000 can move to drawdown. That leaves £80,000 untouched and continuing to grow, meaning her next slice of tax-free cash could be more than £20,000 (25% of £80,000), giving her a higher total tax-free cash amount overall.”