A little-known pension rule could hit 100,000 unsuspecting workers planning to retire in the next few years, experts warn.
The statutory retirement age is set to rise to 67 in 2028, but the lesser-known “normal minimum retirement age” rule will also be raised from 55 to 57. That means most workers who want flexible access to their pension will have to wait another two years before they can use their nest egg without facing a huge tax burden.
It comes as ministers are considering plans to bring forward changes that will raise the statutory retirement age to 68.
That could hit 100,000 workers, according to estimates by pensions consultancy LCP.
LCP’s Steve Webb and former pensions secretary said around 100,000 workers looking to retire early could be caught off guard by the tougher rules on private pensions.
He said: “Once the statutory retirement age increases to 67 and the normal minimum retirement age to 57, people in this situation will have to wait up to two more years before they can access their money.
“This could be a particular concern for those in need or under pressure from the cost of living, for whom access to a small pension pot could be a useful source of financial flexibility. When people don’t have access to their pension but need cash, they may be forced to turn to more expensive ways to meet their needs, such as B. expensive loans or “buy now, pay later” promotions.
“This could be far worse for their finances than being able to access a small portion of their retirement savings at a favorable age.”
According to the Center for Financial Capability, a campaign group, demand for buy-it-now, pay-later programs has increased among older people. The survey found that about a fifth of those over 65 said they had used or intended to use the products in the next 12 months. Less than 10 pieces said so last year.
However, borrowing costs have continued to rise. According to analyst Moneyfacts, the average price for a new credit card rose to a record high this month. It said the average rate is now 30.4 percent.
At worst, this means that if a 55-year-old wanted to use £5,000 from his pension pot to pay his bills but had to use loans instead, interest for a full year would cost him £1,520. The same money invested in her pension pot would grow by just £213 assuming a modest annual return of 4.25 per cent.
Raising the state retirement age should help reduce the cost of the policy to the public purse. However, experts have warned that the increase could also affect the physical and mental health of workers and push thousands of people into poverty.
According to the Institute for Fiscal Studies, a think tank, the latest increase in the statutory retirement age has disproportionately hit older workers in Britain’s poorest areas. This is because they are less likely to have sufficient private savings and therefore have to work longer while waiting for their state pension.
When the statutory retirement age was last raised from 65 to 66, one in seven 65-year-olds fell into income poverty, the IFS estimated.