Government confirms pension-freedom age hike to 57 in 2028

[StepOne]

I'm a similar age too, and I was getting very concerned that any required COVID-related tax-raising options might have included moving these goalposts closer again and potentially spoiling what are surprisingly near-term aspirations nowadays, so seeing the Government legislate for a 2028 changeover date would be something I'd hopefully benefit from too..

Just wanted to pick up this point. Surely if it wanted to increase tax take the gov would move this change further away, not closer. Or even cancel it altogether, since delaying people taking their pensions means they have longer to save into them (tax free) and delays the point that they start paying income tax on their withdrawals?

[NeilW]

What's particularly amusing of course is that the entire Covid debacle has shown that we can provision the entire country with barely a third of the population actually doing any work. And the circulation can be kept going with "furlough pay" - aka temporary retirement.

Which means that when the government is shouting about getting people to return to wasting their life on trains and the like just to keep coffee shops in the city centres going, they would be better off announcing that they are dropping the retirement age to 50 and replacing the coffee shops with machines.

The notion that the "dependency ratio" is getting worse is a complete lie, and we need to have a conversation about exactly who is gaining the benefit of these ever expanding retirement ages (clue: why have 25 year mortgages become 35 year mortgages? Expectations of retirement age...).

[NeilW]

Surely if it wanted to increase tax take

Government struggles to increase the total tax take, since that is a function of how much the non-government sector wants to borrow and save and little else. If you look at the numbers you'll find that government gets back about 90% of what it spends in normal times no matter what it does - the rest is increase in private savings (largely a result of net pension savings - here and abroad). All government can really do is alter the distribution around - if you pay more tax, then the people you would otherwise have spent your money with pay less.

[Quint]

This has been on the cards for a while as we're all living longer. It makes total sense as the state pension gone from 65 to 67, so personal pensions shift by 2 years as well, 10 years earlier.

Let's remember it was George Osbourne that gave us the pension freedoms in 2015, increased the personal allowance and allowed personal pensions to be passed to loved ones either tax free or at marginal rates. Although he gets a bad press he did extremely good things for us here, completely anathema to labour.

Indeed, George gave me and my wife a future we could have only dreamed of if we would have been forced to buy an annuity.

[dealtn]

What's particularly amusing of course is that the entire Covid debacle has shown that we can provision the entire country with barely a third of the population actually doing any work. And the circulation can be kept going with "furlough pay" - aka temporary retirement.

Maybe I am misunderstanding you, but what do you mean by provision?

If you mean provide all the goods and services the country needs then this has clearly proved to be not true. There have been large areas where items of goods are unavailable, and of services unable to be provided (and the "working" population never fell by 2/3rds).

If you mean the country had been able to finance and pay furlough to all these people then yes that has been true, but at the large cost of a worsening financial position, so much so that we are now having to come off that as it is proving to be unsustainable. I'm assuming its the last part of that statement you are disagreeing with?

[StepOne]

Surely if it wanted to increase tax take

Government struggles to increase the total tax take, since that is a function of how much the non-government sector wants to borrow and save and little else. If you look at the numbers you'll find that government gets back about 90% of what it spends in normal times no matter what it does - the rest is increase in private savings (largely a result of net pension savings - here and abroad). All government can really do is alter the distribution around - if you pay more tax, then the people you would otherwise have spent your money with pay less.

Hi Neil,

It was ItsAllAGuess who said that moving the pension freedom age out was a tax-raising plan. I was just questioning the logic behind that.

StepOne

[Itsallaguess]

I'm a similar age too, and I was getting very concerned that any required COVID-related tax-raising options might have included moving these goalposts closer again and potentially spoiling what are surprisingly near-term aspirations nowadays, so seeing the Government legislate for a 2028 changeover date would be something I'd hopefully benefit from too..

Just wanted to pick up this point. Surely if it wanted to increase tax take the gov would move this change further away, not closer. Or even cancel it altogether, since delaying people taking their pensions means they have longer to save into them (tax free) and delays the point that they start paying income tax on their withdrawals?

If people working longer raises an improved level of tax, then the sooner the Government legislates for people only being able to access their pensions once they are 57, rather than the current 55, then that 'bakes in' some level of improved tax returns using that legislation.

That's what I meant when I thought they might have legislated for that 57 access to be brought in earlier than 2028, due to the COVID-related hit to the public finances that have occurred since that 2028 date was first mooted...

Cheers,

Itsallaguess

[OLTB]

I have heard that a fair proportion of pension tax-free cash is spent in the UK economy (camper vans being fairly popular) so I’m not too sure why the Govt would want to potentially delay this spending. I’m not intending on spending mine though...

Cheers, OLTB.

[ursaminortaur]

This has been on the cards for a while as we're all living longer. It makes total sense as the state pension gone from 65 to 67, so personal pensions shift by 2 years as well, 10 years earlier.

Let's remember it was George Osbourne that gave us the pension freedoms in 2015, increased the personal allowance and allowed personal pensions to be passed to loved ones either tax free or at marginal rates. Although he gets a bad press he did extremely good things for us here, completely anathema to labour.

Indeed, George gave me and my wife a future we could have only dreamed of if we would have been forced to buy an annuity.

The requirement to convert your pension into an annuity by age 75* was removed in 2006 under Gordon Brown's A-day pension reforms but there were limits on how much you could drawdown with stricter limits after age 75. It was these limits rather the requirement to buy an annuity that George Osborne removed with his pension freedoms.

https://en.wikipedia.org/wiki/Income_drawdown#2006_and_2011_pension_reforms

Pension reforms in 2006 extended the option for drawdown beyond age 75, but with greater restrictions. At that time income drawdown was given the alternative name of an unsecured pension (USP) prior to age 75 and an alternatively secured pension (ASP) after age 75. Neither provided a secured status. Income limits were capped at 100% of the relevant GAD rate for USPs and 70% in respect of ASPs.
.
.
.
After April 2011, drawdown has been reintroduced as the common term and those under 75 can withdraw up to 150% (120% prior to March 2014) of the GAD rate. Once again review dates occur every three years for those under 75 and annually thereafter.
.
.
.
In the March 2014 Budget, George Osborne announced that from 6 April 2015, there would no longer be any restrictions for those wishing to access their pensions. This permits unlimited withdrawals from the pension fund from the age of 55.

* The ability to use drawdown rather than purchasing an annuity before age 75 was introduced in 1995

https://en.wikipedia.org/wiki/Income_drawdown#Introduction_in_1921_and_early_development

From 1995, in response to falling annuity rates, income drawdown was introduced as an alternative way of drawing an income and, under the original rules, purchasing an annuity no later than the 75th birthday.

The limits for withdrawal, set by the Inland Revenue, using annuity rates calculated by the Government Actuary's Department (GAD), set limits to the withdrawals based on the age of the individual and the existing gilt yield. Originally the minimum and maximum withdrawal rate was set at 35% and 100% of an amount that broadly reflected the annuity that could have been bought based on a single life basis with no annual increases.

To prevent the erosion of capital a review was conducted every third anniversary, with new limits being set based on the individual's age, the Gilt rate and fund size at the time. The requirement for a minimum income withdrawal was later removed.

[NeilW]

If you mean provide all the goods and services the country needs then this has clearly proved to be not true. There have been large areas where items of goods are unavailable, and of services unable to be provided (and the "working" population never fell by 2/3rds).

There haven't been large areas at all. We maintain the country operating with a set of key workers and it worked fine for months. Goods have been supplied sufficiently, and very few other services were required to open things up operationally.

Key workers were 26% of the population. https://www.ifs.org.uk/publications/14763

If you mean the country had been able to finance and pay furlough to all these people then yes that has been true, but at the large cost of a worsening financial position, so much so that we are now having to come off that as it is proving to be unsustainable. I'm assuming its the last part of that statement you are disagreeing with?

There is no worsening financial position. It all just goes around in a circle. Draw up the central bank balance sheet and you'll see how.

[Itsallaguess]

Can I please ask that we don't get too off-topic on this thread?

There's other boards better positioned for some of the economic and political debate brewing up at the moment, and I think it would be a shame if we got too far away from the main topic of the pension-freedom age change being discussed...

Cheers,

Itsallaguess

[Quint]

This has been on the cards for a while as we're all living longer. It makes total sense as the state pension gone from 65 to 67, so personal pensions shift by 2 years as well, 10 years earlier.

Let's remember it was George Osbourne that gave us the pension freedoms in 2015, increased the personal allowance and allowed personal pensions to be passed to loved ones either tax free or at marginal rates. Although he gets a bad press he did extremely good things for us here, completely anathema to labour.

Indeed, George gave me and my wife a future we could have only dreamed of if we would have been forced to buy an annuity.

The requirement to convert your pension into an annuity by age 75* was removed in 2006 under Gordon Brown's A-day pension reforms but there were limits on how much you could drawdown with stricter limits after age 75. It was these limits rather the requirement to buy an annuity that George Osborne removed with his pension freedoms.

https://en.wikipedia.org/wiki/Income_drawdown#2006_and_2011_pension_reforms

Pension reforms in 2006 extended the option for drawdown beyond age 75, but with greater restrictions. At that time income drawdown was given the alternative name of an unsecured pension (USP) prior to age 75 and an alternatively secured pension (ASP) after age 75. Neither provided a secured status. Income limits were capped at 100% of the relevant GAD rate for USPs and 70% in respect of ASPs.
.
.
.
After April 2011, drawdown has been reintroduced as the common term and those under 75 can withdraw up to 150% (120% prior to March 2014) of the GAD rate. Once again review dates occur every three years for those under 75 and annually thereafter.
.
.
.
In the March 2014 Budget, George Osborne announced that from 6 April 2015, there would no longer be any restrictions for those wishing to access their pensions. This permits unlimited withdrawals from the pension fund from the age of 55.

* The ability to use drawdown rather than purchasing an annuity before age 75 was introduced in 1995

https://en.wikipedia.org/wiki/Income_drawdown#Introduction_in_1921_and_early_development

From 1995, in response to falling annuity rates, income drawdown was introduced as an alternative way of drawing an income and, under the original rules, purchasing an annuity no later than the 75th birthday.

The limits for withdrawal, set by the Inland Revenue, using annuity rates calculated by the Government Actuary's Department (GAD), set limits to the withdrawals based on the age of the individual and the existing gilt yield. Originally the minimum and maximum withdrawal rate was set at 35% and 100% of an amount that broadly reflected the annuity that could have been bought based on a single life basis with no annual increases.

To prevent the erosion of capital a review was conducted every third anniversary, with new limits being set based on the individual's age, the Gilt rate and fund size at the time. The requirement for a minimum income withdrawal was later removed.

Yes, you are right about the annuity bit, but George's final changes did the trick for us.