Thousands of pension savers hoping to start taking money from their pot from age 55 could be stung by a little-known rule change which might delay their retirement.

The State Pension age is currently 66 for both men and women, and will rise to 67 in 2028. However, many people are unaware that the normal minimum pension age will also increase from 55 to 57 from this date. This means that from 2028 onwards, you will have to be aged 57 or older before you can start withdrawing money from a defined contribution pension. Read more about how this type of pension works in our article What is a defined contribution pension?

At present, you can access your defined contribution pension from age 55 and do as you wish with the money, including taking up to 25% as a tax-free lump sum. Find out more in our article Your pension options at retirement. However, increasing this age by two years from 2028 will mean many people have to wait longer before dipping into their pot to fund partial, or full retirement.

This may cause issues for people who might be hoping to gradually reduce their working hours while supplementing their income with money from their pension, for example.

Alternatively, people may need access to some cash from their pension at age 55 simply to fund the rising cost of living, or they may be forced into early retirement. Read more in our article How can I manage the impact of early retirement? However, if they access their pension before normal minimum retirement age, they could face hefty tax charges.

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors.

How many people are affected by the change?

The increase in the normal minimum pension age to 57 from 2028 will affect around 100,000 workers, according to estimates from pensions consultancy Lane, Clark and Peacock (LCP).

Sir Steve Webb, a former pensions minister who now works for LCP, said: “Once the State Pension age rises to 67, and normal pension age rises to 57, people in this situation will have to wait up to two years longer to access their money.

“This could be a particular problem for those in hardship or facing cost of living pressures for whom accessing a small pension pot could be a useful source of financial flexibility. Where people cannot access their pensions but need cash they may be forced to opt for more expensive ways of meeting their needs such as high cost credit or buy-now-pay-later promotions.

“This could be much worse for their finances than being able to access a small part of their retirement savings at a convenient age.”

The Pensions Act 2011 brought forward an increase in the State Pension age for women to 65 in November 2018, instead of April 2020. The State Pension age reached 66 for both men and women in October 2020. Read more in our article How the State Pension works.

The last increase in the State Pension age had a major impact on the poorest areas of Britain, who often rely on this alone for their retirement income, according to the Institute for Fiscal Studies. They are less likely to have money tied up in workplace or personal pension schemes, and face working for longer before receiving the State Pension. The last increase to 66 in the State Pension age pushed one in seven people aged 65 into income poverty, according to the IFS.

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If you’re considering getting professional financial advice, Fidelius is offering Rest Less members a free pension consultation. It’s a chance to have an independent financial advisor give an unbiased assessment of your retirement savings. Fidelius is rated 4.7/5 from over 1,000 reviews on VouchedFor. Capital at risk.

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What if I have a defined benefit or final salary pension?

If you have a defined benefit pension, often known as a final salary pension, you won’t be affected by the increase to the pension age outlined above.

Instead, your normal retirement age will vary depending on your profession and the particular scheme you belong to, but it’s typically 65. However, it could be 60 or even younger. You generally can’t retire earlier than this age without receiving a lower pension. Find out more in our guide What is a defined benefit pension? 

Where to go for more help

Even if retirement seems a long way off, it’s wise to review your pensions as soon as possible to ensure they can provide you with the flexibility you might ultimately need. This is particularly important if the pension age rule changes could impact on your retirement plans. You can find out more about when you can retire in our guide Retirement age: When can I retire?

Bear in mind that if you have an illness or disability that’s making it difficult for you to work you might be able to access your pension early. Read more in our article Can I retire early because of illness or disability?

If you’re thinking about getting professional financial advice, you can find a local financial adviser on VouchedFor or Unbiased.

Alternatively, if you’re looking for somewhere to start, we’ve partnered with independent advice firm Fidelius to offer Rest Less members a free initial consultation with a qualified financial advisor. There’s no obligation, however if the adviser feels you’d benefit from paid financial advice, they’ll talk you through how that works and the charges involved.

Fidelius are rated 4.7 out of 5 from over 1,250 reviews on VouchedFor, the review site for financial advisors.

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