On 6th April 2028, the normal minimum pension age (NMPA) will increase from 55 to 57. The government passed this legislation in 2021 to change the earliest age people can access their pension savings – including private pensions.
What is Normal Minimum Pension Age?
Normal minimum pension age is the earliest that someone can withdraw a lump sum or income from their pension pot tax-free, but individuals can still make a withdrawal before then. The change will however restrict those planning to retire earlier (before the age of 46), who will only be able to access their pension savings for a maximum of three years.
NMPA is expected to rise in lockstep with the state pension age, which is also due to rise from 66 to 67 in a phased introduction over two years starting in 2026. The idea is the two will increase together and remain about ten years apart.
The subsequent increase of the state pension age to 68 was initially planned between 2044 and 2046, with an increase to 58 for NMPA likely to happen around the same time. However, an independent review in 2021 recommended that the date be brought forward to the 2030s.
There are some exceptions. Poor health and eligibility for protected pension age can still qualify people for earlier retirement, and some pension schemes also provide protections that would make the increase redundant.
The government has so far deferred the decision pushing it back until the next Parliament – after the next general election. The delay is reportedly down to a slowing in the rate of increase in life expectancy in the UK.
Recent research from TPT Retirement Solutions shows that while most workers between 50 and 59 are unaware of the normal pension age, 76% of workers are worried about the potential for a further increase to the state pension age in the 2030s.
TPT Retirement Solution’s report highlighted a knowledge gap in the pre-pension age demographic. Only 35% of workers in the study’s age group correctly identified their current minimum pension age as 55, with 50% believing it was over the age of 60.
This might explain why just 21% of the group plan to access some of their pension before they turn 60, and concerns are more directed towards increasing the state pension age rather than the minimum pension age.
Why Are People Concerned?
- Retirement Plans – The changes to the state pension age may impact many people’s retirement plans. In the same report, TFT Retirement Solutions found that only 15% of workers in their 50s planned to retire after the age of 68, and as many as 73% planning to retire before then.
- Health – Over a third (35%) of the people asked in the study said they were concerned about the increase in retirement age because of potential illness, their health, life expectancy, or other family reasons.
- Finances – 74% of the group said they would rely on State Pension as income for their retirement, and 47% said they would be forced to work longer because they couldn’t afford to retire.
- Believe they deserve to retire – More than half of the people asked (51%) said they deserved to retire because they had worked and contributed to their National Insurance for long enough.
David Lane, Chief Executive of TPT Retirement Solutions, said: “Our research shows the degree of concern many people in their 50s have about increases to the minimum and state pension ages. As the national minimum pension age increases, it is important for people to be aware of how this change may impact their retirement plans. Any further increases to the state pension age in the coming years will cause further worry for this age group.
“Given the number of people depending on the state pension as their primary source of income, many could be effectively forced to work for longer. Those with physically demanding jobs may find working for an additional two years particularly challenging. People in their 50s with a defined contribution pension should consider, where at all possible, increasing their pension contributions if they want to retire earlier or protect themselves against any future changes in the state pension.”
Why is the Pension Age Increasing?
The state pension is reviewed regularly to take increasing life expectancy into consideration. People live longer on average thanks to modern medicine, better working conditions, better hygiene, and healthier lifestyles.
In 1940, when state pensions were introduced, life expectancy was 62.4 years. Today it’s 80.9 years. The way we work and the types of jobs people do has also changed – fewer jobs involve manual labour, and there are more jobs that someone could conceivably do into old age.
The tax burden of state pensions is also increasing. The 2021 UK census confirmed there were over 11 million people over 65, making up 18.6% of the population. This has increased from 16.4% recorded in the previous census in 2011. As a result of the growing number of pensioners, the government is expected to have spent £112.5bilion on state pensions in the 2022-2023 tax year.
This isn’t a trend happening in isolation. As the number of people in the UK claiming state pensions increases, the proportional number of working-age people funding pensions through taxes is reducing. This gap is only predicted to increase, as the UK fertility rate continues to fall well below the replacement rate, meaning there will always be more older than younger people.
Initiatives like The Provisions in the Pensions Act 2008, making the automatic enrolment of employees onto a private pension a legal requirement in 2012 and placing the duty on employers, should make pensioners less reliant on their state pension in the long run. However, despite predicted benefits like increased participation and retirement savings, flexibility, financial security, and autonomy, it will take decades before the retiring population feels the effects.
What is Protected Pension Age?
A Protected Pension Age is a term used in some pension systems to describe a specific age at which an individual’s pension benefits are guaranteed to be paid out without any reduction due to early retirement. This means that if a person’s pension age is “protected” at a certain age, they can start receiving their pension benefits at that age without any penalties or reductions, even if they have not reached the standard retirement age defined by the pension plan or government regulations. In the UK, the current protected pension age of 55 is increasing to 57 in 2028.
What are Occupational Pension Schemes?
Occupational pension schemes, also known as employer-sponsored pension plans or company pension schemes, are retirement savings plans established and administered by employers for the benefit of their employees. An occupational pension scheme as part of pension benefits is a crucial component of an employee’s overall compensation package and is designed to provide financial security during retirement and potential ill health.
What are Public Service Schemes?
Public service schemes, also known as public service pension schemes, are retirement savings plans or pension programmes designed for employees working in the public sector. These schemes are typically offered by government entities, such as federal, state, or local governments, as well as certain public service organisations. Public service schemes aim to provide retirement benefits and financial security for public sector employees when they retire.
What is a Personal Pension Scheme?
A personal pension scheme, also known as a personal pension plan or individual pension plan, is a retirement savings plan that individuals can set up on their own, independent of any employer. These personal pensions are designed to help individuals save for their retirement, and they are often used when an individual does not have access to an employer-sponsored pension plan or wishes to supplement their workplace retirement savings. Personal pension schemes are common in many countries, including the UK.