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financial advice  •  pensions

Private pension withdrawal age raised to 57

By RJP LLP on 22 September 2020

Currently, taxpayers are entitled to take some, or all of the cash held in their private pension fund at age 55, including taking 25% of their savings tax free.

This is set to change because in 2028 the minimum private pension age will increase from the current age of 55 to age 57. This means that from 2028 taxpayers who are currently still contributing to a personal pension will need to wait for another two years before they can access their pension funds.

The rationale behind this change is the forthcoming change to state pension access rules. Although private savers are able to access their pensions before the state pension retirement age, limits are linked to the rules for state pensions by 10 years. Given that the state pension age - currently 65 but rising to 66 this October and to 67 between 2026 and 2028 - is changing, the private pension rules needed to follow suit.

As the access age will be raised to 57 from 2028, this means that taxpayers aged 46 and below may need to rethink their plans if they had been hoping for an early retirement.

What are the current rules for pensions?

Currently, most taxpayers can save up to £40,000 into a pension every year tax free; the amount that can be paid in is a gross contribution of £3,600 or 100% of earnings, subject to a cap of £40,000. Any excess savings beyond this level are taxed at the taxpayer’s marginal rate of tax.

Additional rate taxpayers face further restrictions in the amount they can save in a pension, with the £40,000 personal allowance tapering away. People earning above £240,000 (£200,000 plus the £40,000 they can contribute) have a minimum allowance of £4,000 per annum that they can save into a pension fund.

The total value of an individual’s pension fund is now also restricted by a lifetime allowance, which is currently set at £1,073,100. Any pension investments that exceed this value will incur additional taxes.

partners@rjp.co.uk

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