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OPINION

Couples with age gaps may need new pension plans

Couples with age gaps may need new pension plans
July 24, 2014
Couples with age gaps may need new pension plans

My husband is nine years older than me and is aiming for financial freedom when he turns 65. I'd like the option to join him and make exciting plans together for that period of our lives, which will start when I turn 56.

Up until this week, my plan looked like it would work – I would be able to take a modest pension from my workplace defined contribution pensions from age 55. But the government's pension reforms have very annoyingly introduced the need for me to change my plans.

This week the government has confirmed that anyone 43 or under won't be able to access money in a defined contribution (DC) pensions scheme until they are age 57. Plus, there is the potential for this restriction to rise to a higher age. The government says the minimum age for taking a DC pension will rise in line with rises in state pension age.

I think this age restriction might discourage savers into the government's new "no need to take an annuity" pensions, once it becomes more widely known.

You can calculate your state pension age and get an estimate of what you will receive at: https://www.gov.uk/calculate-state-pension. Your private pension age will be 10 years before this – unless they change the rules again.

It's a shock for younger Generation X-ers such as myself, who have been building up pension contributions since we started working more than 15 years ago. When I started contributing to a pension, the minimum age for accessing it was 50, but this was raised to 55 on 6 April 2010. If life expectancy increases dramatically, there is a real possibility the minimum age for accessing a DC pension could rise to 60 for someone in their early 40s today.

Some of us, however, might have a 'protected pension age' hidden in the details of an old workplace pension scheme.

According to HMRC, you may be able to start taking your pension before you're 55 if you were a member of a workplace pension scheme before 6 April 2006. This will depend on the type of scheme you belonged to and the scheme has to specify that on 5 April 2006 you had the right to start taking your pension before you're 55 from that pension scheme. This means you didn't need agreement from anyone else to take your pension – for example, from your employer or scheme trustees.

This right to take your pension before 55 must have been set out in the scheme rules on 10 December 2003. Your scheme administrator can tell you if this applies to you.

I think I have one of these 'protected pension age' pensions, but I'll be writing to my scheme administrators to confirm.

However, the main change to my plans going forward is that I'm going to build up any extra investments in individual savings accounts (Isas). Although Isas aren't as tax efficient as pensions – you don't benefit from compounding of income tax relief, for example – access to Isa money is not restricted by age.

I reckon that I'll be able to build up at least a few years' retirement income in Isas to bridge the gap between the age at which I'd like some financial freedom and the age at which my pension can contribute to this.