HMRC confirms Normal Minimum Pension Age change: could the new rules affect your retirement plans?
The government has confirmed the increase to the Normal Minimum Pension Age (NMPA). This is the earliest age that most people can access their defined contribution pension without paying an unauthorised payment tax charge.
While the increase from age 55 to 57 has been known for some time, HMRC has now clarified exactly how the rules will apply to people approaching retirement as the minimum pension age increases. Here's what you need to know.
What is changing?
Currently, most people can access their personal or workplace defined contribution pensions from age 55. However, from 6 April 2028, the minimum age will increase to 57.
The change is designed to keep the minimum pension age around ten years below the State Pension age, which is currently 67 for most people approaching retirement today.
Who will be affected?
Whether the change impacts you depends on your date of birth:
If you were born before 6 April 1971. You'll still be able to access your pension from age 55, even after the rules change.
If you were born on or after 6 April 1973. You'll generally need to wait until your 57th birthday before you can take money from your pension.
If you were born between 6 April 1971 and 5 April 1973. This is where things become more complicated. You'll be aged 55 or 56 when the rules change in April 2028, meaning the new transitional rules could affect how you access your pension.
What do the transitional rules mean?
If you fall into this transitional group, the impact depends on whether you have already started using your pension before the rules change. For example, if you've already started using your pension in one of the following ways, those existing arrangements can generally continue:
Moved money into drawdown.
Bought a pension annuity.
Started receiving a defined benefit pension.
However, until you reach age 57, you won't normally be able to:
Move additional pension funds into drawdown.
Take further tax-free cash from pension savings you have not already accessed.
Use untouched pension savings to buy a new annuity.
Start taking benefits from another pension that hasn't already been accessed.
If you want to access pension benefits under the current minimum pension age rules, you generally need to have reached age 55 and accessed those benefits before 6 April 2028.
After then, the new minimum pension age of 57 will usually apply to any pension benefits you have not yet accessed.
Could this interrupt phased retirement plans?
Potentially, yes. Many people choose to access their pension gradually rather than taking everything at once. This might involve moving smaller amounts into drawdown over several years, taking occasional lump sums when needed, or using part of their pension to buy an annuity while leaving the rest invested.
For those affected by the transitional rules, this approach may need careful planning. For example, if you only use part of your pension to buy an annuity or move some funds into drawdown before the rule change, you typically won’t be able to access the rest until you reach age 57. This could affect plans to top up your income gradually or combine different retirement options during your mid-fifties.
It could create an unexpected gap in your retirement income if you've already built your plans around being able to access more of your pension at age 55 or 56.
Will some people choose to access more of their pension early?
For some people in the transitional group who reach age 55 before 6 April 2028, there will be a window of time when you can access all or some of your pension fund before the rule change takes effect. Your options could include:
Moving all or some of your pension pot into drawdown.
Taking an ad hoc lump sum, with up to 25% usually available tax-free.
Arranging a lifetime annuity to secure a guaranteed income for life.
Arranging a fixed-term annuity to secure an income for a set number of years. For example, if someone selects a two-year annuity at 55, they could re-evaluate their retirement income options at 57.
Deciding how and when to access your pension requires careful thought. Leaving money in your pension for longer can give it more time to grow within a tax-efficient environment, giving you more time to build up your fund and consider your options. Taking too much too soon could reduce the amount available to support your retirement later on.
Taking your whole pension at 55: what to consider
Rachel Vahey, head of public policy at AJ Bell, warned that the rule change could encourage some people to access more of their pension earlier, rather than taking a more gradual approach. She said this could create a “perverse incentive” for some savers to access their full pension fund before the changes take effect.
If you’re considering moving your whole pension into drawdown before April 2028, it’s worth understanding how this could affect your future options, including the amount of tax-free cash available later.
Imagine you have a pension worth £100,000. If you move the whole fund into drawdown at age 55, you’ll typically be able to take up to 25% (£25,000) tax-free. The remaining £75,000 stays invested in drawdown and can be accessed through taxable withdrawals.
Or, you could initially access a more modest £20,000 from your fund. In that case:
£5,000 would usually be available as tax-free cash.
£15,000 would move into drawdown.
The remaining £80,000 would stay invested in your pension fund.
Should that £80,000 continue to grow over time in your pension fund, the tax-free cash available when you later access it could also increase.
Of course, investment growth isn't guaranteed, and pension values can go down as well as up. Whether this approach is suitable depends on your financial circumstances and retirement goals.
Should you change your retirement plans?
Not necessarily. While the new rules may affect when some people can access their pension, making decisions purely to beat the increase in the minimum pension age isn't always the right approach.
If you were born between 6 April 1971 and 5 April 1973 and were planning to retire in your mid-50s, it's worth reviewing your retirement plans before 6 April 2028. A financial adviser or Pension Wise can help you understand how the transitional rules could affect your retirement income options and whether changes are needed.
Reviewing your plans early can help you avoid unexpected surprises and make informed decisions about how and when to access your pension.
Explore your options
As explained above, there are a number of ways you can access or invest your pension pot.
Our Annuity Specialists will be happy to discuss your lifetime and fixed term annuity options. They can also prepare personalised quotes from leading annuity providers at today’s best annuity rates. These will show examples of the income or future lump sum you can lock in with your fund.
Call our team on freephone 0800 652 1316 or request a call back. Alternatively, use our free annuity calculator for an instant estimate of how much annuity income you could achieve.
