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Benefits

Raising The Pension Age to Combat High Withdrawal Risk

By | News & Views, Pensions, Retirement | No Comments

There is a world of difference between retirement and taking the benefits from a retirement plan.   

Retirement describes a point in time when you might stop work and instead live a life without the commute or the daily grind of office politics.  Retirement is a point where you spend the bulk of your time doing the things that you want to do, rather than the things that you have to do! 

If you have a personal pension plan, you can take the benefits from that plan without having to stop work.  Soit’s probably more appropriate to call this a benefit age rather than a retirement age. 

The current minimum benefit age for a personal pension plan owner is age 55.  Some might consider this a rather young age to be taking benefits from a retirement plan; after all, with steadily increasing longevity, a 55-year-old might have to make their pension pot last 30 years, or even longer. 

Since the introduction of pension freedoms in 2015, some commentators are concerned that pension plan owners might have been taking too much too soon from their plans and therefore risking that they might run out of money later in life. 

High withdrawals are, of course, real risk and one that should not be dismissed lightly.  An imperfect storm of falling investment values and excessive rates of withdrawal can quickly run the value of a pot down. 

One solution currently being debated is to increase the minimum age at which benefits can be taken from a personal pension plan.   

Already it is planned that the minimum age at which personal pension plan benefits can be accessed is to be aligned with the State pension age which is set to rise to age 66 from October 2020 and age 67 by 2028 and 68 by 2039. 

The age at which benefits could be taken from a personal pension will rise to 57 by 2028.  There is a call to consider introducing the increase to age 57 now, in fact, in next week’s Budget statement. 

If we trust people with their pension pots, they are no longer compelled to buy a guaranteed income in the form of an annuity; then I think we should continue to trust them to spend their pension pots wisely from age 55. 

Our experience has been that the vast majority of people are sensible in the way in which they take their pension plan benefits. 

The flexibility that they enjoy, a higher income now knowing it will possibly be lower later is an essential part of how they can plan their financial future and get what they want out of life, now. 

Some may already be approaching age 55 with plans to use their pension pot wisely; it would be wrong to deny them that opportunity. 

Photo by Dwayne Hills on Unsplash