Planning to take your pension at 55? You might have to think again

Most people believe that they can start taking money from their pension at 55. And that’s correct, but what you might not know is that recent changes to legislation means that age is now tied to the State Pension age.

So, as it rises, the age you can access your money will also be pushed back.

The only exception to this is for those who are terminally ill, who could access their pension fund ahead of time to help with care and medical costs.

The effect of Pension Freedom

Coming into effect in April 2015, the Pension Freedom reforms were designed to give people greater freedom to access their pensions. The reforms meant that drawdown of pension income is now taxed at your usual income tax rate, rather than being set at 55% for all.

It also means that you now have six options:

  • Leaving your pension fund untouched
  • Purchasing an annuity
  • Flexi-access drawdown (withdrawing an adjustable income)
  • Taking cash in lump sums
  • Taking all money out of the fund at once
  • Using a mixture of these options to create a retirement income to suit you

Over £9.2 billion was accessed during the 15 months following the reforms (Source: Gov.UK), showing just how useful the new rules were for those in the 10 years prior to retirement age.

The headlines have been grabbed by flexibility and Lamborghinis, however, it has almost gone unnoticed that for many people retiring after 2028, the earliest the date they can access their pensions will be increased and linked to their state pension age.

How and when will the State Pension rise?

The State Pension age rises as the general life expectation of the population does. With ever-evolving technology and advances in science and medicine, we are living longer. That sounds good overall, but it also means that we need to work longer to be able to afford to support our lifestyles.

Last year the State Pension age for women rose to 65, in line with men’s. From now on, both men and women in each age group will have the same State Pension age. This is due to rise twice within the next 10 years:

  • To 66 in 2019/20
  • To 67 between 2026 and 2028


You can find out your exact State Pension Age using the calculator, found here.

How does this affect when you can access your private pension?

The government has introduced a new rule which states that the earliest you can access a private pension will be ten years earlier than your state pension age. Therefore, those people retiring from 2028 onwards will have to wait until they are 57. If the state pension age continues to rise, then so will the earliest people can access their private pension.

Waiting an extra year or two might not sound like the end of the world, but it can cause complications if you don’t take it into consideration when planning for retirement.

What should you do?

Your approach will differ, depending on where you are in life. If you are affected, you are left with a number of options which will require a rethink of your pension planning.

Whilst there isn’t a one-size-fits-all approach to retirement planning, there are two options:

Wait it out: If it is suitable, you may want to continue working for an additional year or two and simply wait until you are able to access your pension funds. No-one relishes the idea of spending more time in the office, but it is better than facing financial hardship.

Bridge the gap: Build a financial plan to bridge the gap and pay for your lifestyle between the time you plan to retire and the age at which you can access money.

However, if you have the advantage of time then you can afford to put a strategy in place. This means that you can work toward your dream retirement, without facing financial difficulties when you get there.

Whichever position you are in, there is one common piece of advice:

Talking to a professional

Independent financial advisers are equipped with the knowledge, experience and qualifications to help you to build a financial plan which enables you to reach your goals, whilst still living well in the meantime.

Research from Unbiased has shown that those who seek financial advice could save an additional £93 each month toward retirement, which results in an additional income of £3,654 per year.

If you are ready to start planning your finances, contact us on 0800 612 8099 or request a call back by clicking here.