Pension warning as earliest access age confirmed to rise by two years

Proposed changes to the normal minimum pension (NMPA) age were announced in July 2021, which plan to increase the NMPA from age 55 to 57. The changes are expected to impact thousands of Britons who want to retire early.

Some people are worried that instances of fraud could increase, with scammers taking advantage of the confusion surrounding the minimum pension age to trick savers.

There are also concerns that mistakes could be made when transferring schemes, with Britons paying a price for any errors. If a person is confirmed as having a protected pension age of 55 by mistake, when it should actually be 57, they could be hit by charges if they access their pension before age 57.

It is not yet clear how harsh the penalties will be for someone drawing from a pension pot before their NMPA.

Others believe that the changes may bringing attention to the NMPA, which could give people the impression they should be drawing their pension at the earliest opportunity, when in reality that would not be the right decision for many people.

Another issue to consider is that the Government’s efforts to provide more clarity for savers regarding their pensions could be undermined by the NMPA alterations.

The Department for Work and Pensions (DWP) confirmed new user-friendly, two-page pension benefit statements will be available for members of defined contribution pension schemes from October 2022.

These new, two-page annual statements for auto-enrolment schemes will display how much money someone has in their private pension pot, what has been saved in the statement year, how much money they could have when they retire as well as what they could do to give themselves more money at retirement.

This follows consultations from the Government in November 2019 to discover how annual statements could be made simpler, shorter and more consistent to support better engagement with people’s workplace pensions.

However, if a person can only access some of their pension from age 55 and and some from 57, they will need two statements each year anyway, which could cancel out the Government’s efforts to simplify them.

Pensions Dashboards are another way the Government hopes they can change how people engage with their private pensions, by allowing savers to view the overall value of all their various pension pots, as well as their state pension entitlement, online and in a single place.

The Dashboard aims to make it easier for people to find out how much they have in both state and private pensions. It is on course to go live in 2023.

However, if someone selects a retirement age of 55, but is only able to draw part of their pension savings at that age, with the remainder not being accessible until they turn 57, it is unclear how their predicted income will be displayed on the Pensions Dashboard. This is because the dashboard is constructed on the idea of people having just one retirement age.

If there is a silver lining to the proposed changes, it is that a longer wait to be able to access a private pension could also mean a longer window to save for retirement, potentially providing a better, more secure financial situation when people do retire.

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