Savers could have to wait until 57 to access their pension pots under new Government plans

The Chancellor is under pressure raise the age people can access their private pensions

Millions of savers could be forced to wait an extra two years to withdraw money from their private pensions under new plans being drawn up by the Treasury, according to reports.

Chancellor Rishi Sunak is under pressure to raise the age limit people can dip into their pensions from 55 to 57 in this month’s Budget on 11 March.

Pension freedoms were introduced in April 2015 and allow anyone over the age of 55 to take some, or all of their pension, as a lump sum, with the first 25% paid tax free.

At the time they were introduced, the then- chancellor George Osborne said that age people could access their private pensions would increase to 57 from 2028.

There has been widespread concern that people could withdraw and run out of money in retirement.

Last year, the Association of British Insurers called on the Government to increase the pensions freedoms age for 55 to 57 to help protect consumers.

According to media reports, the Chancellor is under pressure to bring forward the age in which private pensions can be accessed in this year’s Budget.

A Treasury spokesperson says: “The announcement of the minimum pension age rise to age 57 in 2014 set out the timetable for this change well in advance to enable people to make financial plans, and we will announce next steps in due course.”

However, pensions experts are warning against accelerating the currently planned timetable.

Steve Webb, former pensions minister and now a partner at pension consultants LCP, says ministers “should not rush” to raise pension access age beyond 55.

He says: “The age of access to private pensions is already due to rise to 57 when the state pension age reaches 67 in 2028. Ministers should not rush to accelerate that timetable.  People need time to plan their finances and a sudden change could cause real problems.

“There is very little evidence that people are using the new pension freedoms to recklessly blow their life savings at 55.” 

He says people wanting to access tax-free cash and putting the rest in a low return cash account is a bigger concern.

“A more creative approach might be to explore whether individuals should be able to access their tax-free cash at 55 whilst leaving the rest in their pension if they wish to do so.”

Helen Morrissey, pension specialist at Royal London, says: “While such a move might seem sensible the Government needs to make sure people are given adequate notice and information about such a big change so they can plan accordingly.

“The Government cannot afford another replay of what happened with the WASPI women, some of whom face severe financial hardship as a result of changes to their state pension age not being communicated properly.”

Last week, the ABI warned that if the rate of withdrawing cash from pension pots continues at the current rate, future pensioners will be at risk of running out of money in retirement.

Since the freedoms were introduced, 40% of withdrawals have been at an annual rate of 8%, far higher than recommended 3.5% by experts to remain safe.

The ABI wants the Department for Work and Pensions (DWP) to introduce later life reviews and mandatory risk warnings for pensioners who want to give up valuable defined benefit schemes to transfer into more flexible defined contribution pensions.