The government has given savers a loophole to avoid the minimum pension withdrawal age hike in 2028 to 57, under new rules that will allow savers to continue to unlock their private and workplace pensions at 55.
Since April 2015, pension freedoms have given savers in defined contribution (DC) schemes greater access to their cash, allowing flexible withdrawals from the age of 55.
But in September last year the government provided confirmation that the minimum pension withdrawal age will rise to 57 to reflect trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life.
However, under draft legislation unveiled last week by the government, if you join a pension scheme before 5 April 2023 that allows you access at 55, you’ll be able to access the money at that age – even if you won’t reach 55 until after 2028.
Here, Which? looks at whether you should consider switching providers to unlock your pension early, and how to switch if you feel it’s right for you.
How do scheme rules work for early pension access?
Some people may already be in schemes where the rules state they can access their pension at 55. These people won’t be impacted by the rule changes, and won’t need to take any action to access their scheme at this age.
But many workplace schemes may say that you can start using your savings in line with whatever age the government nominates.
Former pensions minister Sir Steve Webb, now partner at pensions consultancy Lane Clark and Peacock, says: ‘As a first step, pension savers should find out where their own scheme stands. If their scheme’s access age will rise to 57, they may wish to review where they hold their pension savings.’
People who have moved jobs in their working life will probably have multiple pots, which are likely to have different rules so you should check them all.
To do this you’ll need to contact your scheme and ask them what their rules are.
- Find out more: how the pension freedoms work
Should you ever unlock your pension early?
You’ll need to decide if unlocking your pension early is worth it at all before considering using the loophole.
The current state pension age in the UK is 66. This is usually the age people convert their private pensions into an income, so they can get regular payments from both their state and private pensions.
Ultimately, the longer you keep your pension invested and contribute to it, the more you’ll have in your pot to retire. So if you can continue working, it’s well worth doing so you can enjoy the best retirement possible for you.
If you want to unlock your pension early you’ll need to know you can make the money last and not spend it all as soon as you get your hands on it.
- Find out more: what the pension freedoms mean for you
Should I switch providers to access my pension at 55, instead of 57?
If you decide you definitely want to unlock your pension as soon as you’re allowed, you need to really think carefully if it’s worth switching providers for the sake of withdrawing your money a couple of years earlier.
There are a number of things to consider, such as:
- Early exit fees: some providers charge fees to move your pot which can cancel out the benefits of switching;
- Losing valuable benefits: your scheme may offer things such as death benefits or guaranteed annuity rates that you could miss out on;
- Costs: how do they compare to your current pension charges?
- Investment returns: it’s important that your new provider matches your attitude to risk. The closer you are to retirement, the less risk you should be taking on as you won’t have as much time to recover losses.
Switching could be beneficial to you if you’re looking for things such as better investment performance, lower charges or access to a wider range of funds.
Switching providers also gives you the opportunity to consolidate your pots so you can have them all in one place. But again, there are pros and cons, which we’ve outlined in our guide to combining your pensions.
The key is to do as much research as possible to make sure you’re making the right decision for you.
If you want to switch providers you should consider getting independent financial advice, if you can afford to. You can also get free, impartial information about transferring your pension from the government’s free Money Helper service.
- Find out more: how much does financial advice cost?
I still want to switch: how to change pension providers
Before making any decisions, you should contact the provider of the pot you want to transfer and ask about the size of your pension pot, the annual charges, the fees on your investment funds and whether there are any exit fees.
To start the transfer process, you’ll usually be required to fill in an application form to the scheme you want to transfer to which you may be able to do online, or by post if you prefer. Once this has been done, they’ll usually contact your existing pension provider or scheme administrator to arrange the transfer.
Your existing provider(s) might need you to send forms to them, too. Then your scheme administrator(s) or pension provider(s) must move your pension across to the new scheme within six months from the start of the transfer process.
Remember you can normally move a DC pension you have saved into another scheme at any time up to one year before the date when you’re expected to start begin drawing money from it.
In many cases, you can also transfer even after you’ve started to take money from the pension, but not all schemes allow this.
If you need to track down lost pensions you can use the government’s website to find providers you may have had an account with in the past.
How to plan for retirement
Planning for your retirement is really important to ensure you’ll have enough money to last your entire lifetime and live comfortably.
Here are some key things to consider:
Get an estimate of how much you’ll have Pension statements from your employer or provider are useful to indicate how much you’ll get. You can also use our pension calculator to get an estimate of how much you’ll have.
Check your state pension A state pension forecast will help you to gauge how much you’re on course to get from the government, which you can obtain from its website. Find out more in our guide to how much state pension will I get?
Track your expenditure This will give you a better idea of what you’ll be likely to spend in retirement. We’ve put together a guide that highlights how much you could need in retirement based on three levels of spending – for essentials, a comfortable retirement and a more luxurious lifestyle.
- Find out more: how much will you need to retire?