Retirement savers are looking forward to retire with a personal pension at 55 years old, but many will find this is a dream rather than reality.
The private pension age and state pension age are different figures.
The private pension age is 55 years old, but the state pension age is 65 years old until 2019, rising to 66 in 2020 and 67 in by 2028.
The private pension age was last adjusted in 2010 from 50 to 55.
But the small print of Budget 2015 hides a shocking truth for many retirement savers. The rules now say the private pension age should track the state pension by -5 years.
For the unwary, this means that pension freedoms introduced on April 6, 2015, will not always stick at releasing retirement cash from the 55th birthday, but the age limit is likely to rise in line with the state pension age.
State Pension Age tracking
Under current legislation, that means private pension age will go up to 56 years old in 2020 and to 57 years old around 2028.
For the youngest retirement savers, state pension age forecasts see the age threshold rising over the next 40 years, and if the private pension age rules stay the same, so will that threshold.
The worst case for young retirement savers is that the tracking rule means that those retiring in 2064 will only have access to their cash under pension freedoms when they are 70 years old and will have to wait another five years to qualify for their state pensions.
This will disappoint many retirement savers who will complain that this is not what they signed up for when they started a pension.
The Work and Pensions Committee in Parliament has already published research claiming retirement savers have an unrealistic view of when they can access their pensions and give up work.
Unrealistic expectations
Dame Anne Begg, was the Labour chairman of the committee, said: “Savers should not set their sights on a sum to see them through retirement that is too low. People are living longer and should expect to work longer as well as they are fitter and more able.
“Our view is the margin between drawing a private pension and taking the state pension should be five years, except under exceptional circumstances, like ill health.”
The committee’s view is also supported by the Office of Budget Responsibility, which worked out likely pension scenarios based on three longevity forecasts.
Both underwrite the devil in the details that the private pension age should track state pension age.
