Forthcoming changes to how pension savings can be accessed – and when – could affect longer-term plans of many people in their fifties.
Nine years after new pension rules were introduced and the normal minimum pension age (NMPA) of 55 established, the regulations are scheduled to be amended.
This will not happen until 6 April 2028, when the NMPA will rise to 57, but once implemented, the change is likely to have a direct impact upon hundreds of thousands of people.
Those born after 5 April 1973 must contend with the greatest impact because the earliest date they can draw their pension savings will be delayed by two full years.
People born after 6 April 1971 but before 6 April 1973 have options, while the retirement plans of those who celebrate their birthday on or before 6 April 1971 remain unaffected by the forthcoming pension rule change.
Long term plans will be affected by a raft of new pension regulation, but for those aged 55 and above, equity release plans such as the popular lifetime mortgage are an increasingly mainstream means of accessing the hidden wealth accumulated within your home.
Tradition decrees that the first few months of any new year is the time when travel companies utilise every available platform to blitz us with enticing images of warm, sunny locations surrounded by palm fronds, powdery sandy beaches and emerald coloured seas.
It’s a time of year when newspaper, television and online advertisements depict people relaxing, playing with their children, or simply walking hand-in-hand en route towards a restaurant’s sunlit terrace. Here, they extend their holiday enjoyment by consuming a vivacious-looking aperitif prior to digesting the perfect, mouth-watering dinner.
Britain’s dank, overcast days and cold rainy nights offer travel companies a perfect contrast to their slickly promoted holiday destinations, prompting millions of family discussions regarding forthcoming breaks of all durations.
There was a time when this process involved collecting a handful of brochures from your nearest travel agent, plonking them on a table and eagerly browsing for inspiration.
No more. Devices of every description are pivotal in today’s search for the perfect holiday. In fact, the internet’s inexorable growth has coincided with a noticeable surge in the numbers of people prepared to organise their own trips, whether that be a last minute weekend break or a much longer holiday abroad. And, as we have become more adventurous in our holiday planning, so the travel industry has adapted to meet our requirements.
Several recent surveys have concluded that today’s most adventurous travellers are people aged 50+. Granted, thousands of students still manage to see great tracts of the Earth’s most beautiful sights by travelling on a shoestring budget and showing an admirable willingness to stay in, ahem, less luxurious accommodation than their parents and grandparents. According to a 2022 survey conducted by Condor Ferries, this latter cohort, by contrast, spend an average of $8,500 per holiday. Worldwide, baby boomers spend a whopping $157 billion on travel every year. As we get a little older, we understandably grow out of dossing down in a cheap fleapit or sharing a dormitory with half a dozen drunken 22-year-olds intent on singing Sloop John B at 3am.
Yet post-pandemic, unearthing a holiday bargain has become increasingly challenging.
In line with almost everything else, long-haul travel in particular has soared in cost, causing some people to consider whether they need to bookend their holidays with expensive, 8 to 12 hour flights quite so frequently. Such deliberations are most evident among grey-haired folks, particularly once they realise that a forthcoming change to how pension savings can be accessed – and when – could affect their plans.
Rules introduced in 2015 enabled people to access their pension savings upon reaching age 55, creating a tidal wave of headlines regarding Lamborghini Pensioners, the cohort who, according to a number of commentators, were expected to blow their cash on flash, difficult-to-get-into (and out of) cars. Of course, it never happened. Why? Because the overwhelming majority of over-55s are sensible types who appreciate just how much effort went into building their savings in the first place.
Now, nine years after the broadly popular pension rules were introduced and the normal minimum pension age (NMPA) of 55 established, the regulations are scheduled to be amended.
This will not happen for another four years, but from 6 April 2028, the NMPA will rise to 57, a change likely to have a direct impact upon hundreds of thousands of people.
Those born after 5 April 1973 must contend with the greatest impact because the earliest date they can draw their pension savings will be delayed by two full years.
Of course, this could result in people contributing to their pension savings for an additional couple of years, ideally boosting future retirement income. Almost inevitably, it will have some bearing on future plans, especially those that take so much time to organise. Travelling to visit family or friends in far-away places, for instance, or planning large-scale home improvements, such as an extension or new kitchen, could hardly be called ‘5-minute jobs’.
People born after 6 April 1971 but before 6 April 1973 have two options.
The first is to access pension savings before the window closes, ie once you have turned 55, but before 6 April 2028. Bear in mind that there is no need to take all or even a sizeable chunk of a pension pot.
As noted above, the longer pension savings remain invested, the greater time they have to grow. However, for most folks, withdrawing anything over their 25% tax-free entitlement could have the effect of reducing the amount they can pay into their pension savings, under the ‘money purchase annual allowance’ rules.
The second option is to sit on your hands and wait until you reach the age of 57, a preference ideally suited to those who do not want to start drawing from their pension pot.
People born on or before 6 April 1971 have no need to consider this forthcoming pension rule change because they’ll have turned 57 by the time it comes into play; as a consequence, their retirement plans remain unaffected.
Though longer-term plans are bound to be affected by a raft of new pension regulation, there is an alternative to delaying the installation of a new kitchen, the construction of an extension or that long-awaited trip to see offspring settled in the Earth’s farthest-flung corners. Pension withdrawal rules may be changing, but for those aged 55 and above, equity release is an increasingly mainstream means of accessing the hidden wealth accumulated within your home.
Very few people considered them an almost perfect, long term investment when they first bought them, but bricks and mortar have proved an exceptional wealth creator for millions of older homeowners. Moreover, gaining access to that latent property wealth is not only comparatively straight forward, but the funds also released are free of tax.
Statistics show that around two-thirds of the wealth released from family homes is used to either repay an outstanding mortgage, or to finance home improvements. The remaining third is employed to fund items such as a new car or holidays. Indeed, an increasing number of older homeowners create their own ‘holiday fund’ to pay for a combination of long- and short haul travel with holiday dates spread over several years.
With a little planning, equity release can be used to underwrite ‘big ticket’ holidays, such as lengthy cruises scheduled to visit a series of exotic locations, or equally long breaks designed to soak up another nation’s guaranteed winter sun. The same holiday fund can also be utilised to bankroll shorter breaks closer to home or on European vacations.
Covid-19 became responsible for many things, not least a surge in demand for long and short haul travel which built inexorably as millions of people contended with the pandemic.
Today, demand is greatest among folks aged 55 and above, their collective attitude towards travel directly influenced by a well-known mantra, often called upon to justify a little extravagance: “You can’t take it with you…”
How many more times will our pension rules change in the coming years? Who knows, but it’s unlikely that the planned amendments to regulations, pencilled in for 2028, will be the last.
For those who enjoy the late winter/early spring tradition of searching for warm, sunny holiday locations surrounded by palms, breath-taking beaches, and azure coloured seas, exploring the benefits of equity release could ensure they have little need to worry about future amendments to pension rules.
