Pensions may be an important part of your clients’ retirement planning strategies. They’re an excellent option for building wealth. Pension savers may benefit from employer contributions on top of their own. They’ll also receive tax relief on their contributions, and the wealth is invested, so could grow over time.

However, when planning their retirement, your clients are likely to consider when they’ll be able to access their pension savings.

From April 2028, the “normal minimum pension age” (NMPA) – the age at which you can usually start drawing from pensions – is increasing.

This could affect your clients’ financial plans but with the right support, they can still achieve their desired lifestyle in retirement.

Read on to learn how a financial planner could help your clients prepare for upcoming changes to the NMPA.

The normal minimum pension age will increase to 57 from April 2028

The NMPA is currently 55. While there may be some exceptions, this means that your clients typically won’t be able to access their pensions until they’re 55.

However, from 6 April 2028, the NMPA will increase to 57. Consequently, unless they turn 55 before the change comes into effect, your clients will likely have to wait an additional two years before they can withdraw their pension savings.

There are some exceptions to this and your clients may have a “protected pension age”. For example, they may still be able to access their pensions before age 57 if they:

• Had the right to take pension benefits before age 50 prior to April 2006. This may be because they were part of a profession who could access their savings early, such as a sports person.
• Held a pension that gave them the right to access their pensions before 55 prior to April 2006.

If your clients have a protected pension age, they may not be affected by the increase to the NMPA.

Clients born between April 1971 and April 1973 could be especially affected by the change

Certain clients who will turn 55 shortly before the NMPA increases could be more affected by the change.

Those born between 6 April 1971 and 5 April 1973 will turn 55 before the change comes into effect. This means they will be able to access their pension savings. However, the NMPA will increase before they’re 57, meaning they might be locked out of their pensions again.

If you have clients born on 5 April 1973, they will be able to access their pensions for 24 hours before potentially being locked out again.

According to Money Marketing, this problem could affect more than 1 million people. The government have acknowledged the issue but are yet to announce any measures to support savers.

Whether your clients fall into this group or not, they may be affected by the change to the NMPA. This is because they may have planned for retirement assuming they could access their pension savings from 55.

Fortunately, we can help them prepare for the change.

2 ways a financial planner can help your clients prepare for changes to the normal minimum pension age

1. Building more wealth outside their pensions

If your clients aimed to retire around age 55, the increase to the NMPA could disrupt their plans because they won’t be able to access their pension savings for another two years.

However, they may be able to use savings from other sources, such as ISAs, to fund their lifestyle until they can draw from their pensions.

With our help, they can determine how much wealth they will need to support themselves until they’re 57. We can also calculate the contributions your clients need to make to their savings to build this additional wealth.

Drawing wealth from an ISA could be beneficial for your clients because they don’t pay Income Tax or Capital Gains Tax on these savings, while they may pay some tax when accessing their pensions.

Also, if they’re able to use ISA savings first and leave their pension wealth invested for longer, they could potentially achieve more growth. Additionally, pensions normally fall outside your estate for Inheritance Tax (IHT) purposes, so leaving pension savings invested could support their estate plan.

As such, funding their lifestyle using ISA savings, excess cash, or other investments before accessing their pensions could mean your clients are able to retain more of their pension wealth, benefit from further investment growth, and help reduce their tax liability.

2. Considering the tax implications of drawing from their pensions and other savings

Clients born between April 1971 and April 1973 could gain access to their pensions at 55 before being locked out again. These individuals may want to draw enough wealth from their savings to fund their lifestyles until they turn 57 and can access their pensions again.

While they can normally take the first 25% as a tax-free lump sum, they may pay some Income Tax when drawing additional income from their pensions. We can help them understand exactly what tax they’re likely to pay.

Additionally, we could create a retirement budget to give clients an idea of how much they need to draw from their pensions to fund their lifestyle. Consequently, they can avoid taking more than they need to, so they can potentially limit the tax they pay.

Leaving more of their pension wealth invested also allows them the opportunity to further benefit from potential investment growth.

We may also discuss other savings such as an ISA and whether clients could rely on this wealth instead. This could benefit them as they won’t pay Income Tax or Capital Gains Tax when drawing wealth from their ISAs.

Get in touch

If your clients are concerned about changes to the NMPA, we can give them guidance.

They can contact us at hello@ardentuk.com or call or WhatsApp us on 01904 655 330. As an award-winning financial advice company with advisers included in the 2024 VouchedFor Top Rated guide, you can be sure that we’re a bona fide company providing excellent advice and high-quality service.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The Financial Conduct Authority does not regulate cashflow planning or tax planning.

A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.

Workplace pensions are regulated by The Pension Regulator.

The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.