Age for cashing in pension ‘to be raised to 57’

MILLIOnS of savers could be forced to wait another two years to dip into their pensions under controversial plans drawn up by the Treasury.

Chancellor Rishi Sunak has come under pressure ahead of next month’s Budget to raise the minimum pension age from 55 to 57 amid fears many households have been cashing in their retirement funds too quickly.

Sweeping pension reforms were introduced in April 2015, allowing savers more freedom over what to do with their own money. But at same time George Osborne, then chancellor, made a little-noticed pledge to raise the threshold from 55 to 57 by 2028.

This was designed to ensure there is a ten-year gap between the age at which savers can draw their private pension and the state pension age, which is set to rise to 66 for both men and women this October, and to 67 by 2028 and 68 by 2039.

The pledge, contained in a Treasury document in July 2014 and signed off by Mr Osborne, has been shelved by successive ministers. But the Treasury has told the Daily Mail it intends to press ahead with the reform.

With Mr Sunak due to deliver his first Budget on March 11, the biggest pensions firms are lobbying the Government to introduce legislation as swiftly as possible. The Association of British Insurers warned earlier this week that more than 350,000 savers cashed in their entire pension pot last year, and claimed many are in danger of falling into ‘poverty’ in retirement.

But last night experts warned an increase in the pension age will come as nasty shock to many savers including carers and those in ill health, who had banked on accessing their savings at 55 years of age.

Baroness Altmann, who was pensions minister when the reforms were introduced, said: ‘The whole point of having a private pension is to allow people to retire if they need to.

‘We need to maintain the principle of trusting people with their money and giving them freedom and choice.’

Carla Morris, financial planner at Brewin Dolphin, said: ‘This will come as a surprise to many. If the new tax rules come into effect, people could have to get extra jobs or work longer than expected to replace the income they thought they would get at 55. It is important for everyone to be aware.’ Mr Osborne’s 2015 overhaul gave savers more flexibility over what to do with their pension pots, including the ability to cash them in at the age of 55.

It proved hugely popular, with savers withdrawing almost £33billion since they were introduced. Previously, people could only draw a quarter of their funds as tax-free cash at that age.

Earlier this week the ABI warned that many were withdrawing their retirement funds at an ‘unsustainable rate’, with one million cashing in their entire pot. It said: ‘The earlier that someone can access their pension, the greater the risk of exhausting their pot, especially as the state pension age is increasing.’

But industry experts have said the warnings are overblown. They have pointed out that most savers have several pensions, while official figures show 90 per cent of funds that are completely cashed in are smaller pots worth less than £30,000. HM Revenue & Customs figures show that the average withdrawal from a pension had fallen to £6,820 at the end of last year, down from £11,940 in 2015.

A Treasury spokesmansaid: ‘The announcement of the minimum pension age rise to age 57 in 2014 set out the timetable for this change, and we will announce next steps in due course.’

‘Giving freedom and choice’