The 2028 pension trap waiting for clients aged 55 and 56

Clients born between 6 April 1971 and 5 April 1973 may need to revisit their retirement plans. Advisers may have some suitability reports to revisit as well.

These are people who may have organised their retirement around the rules as they currently exist. How unreasonable of them.

HMRC has clarified the transitional arrangements required when the normal minimum pension age rises from 55 to 57 on 6 April 2028.

Anyone aged 55 or 56 when the change takes effect could find themselves caught between the two minimum pension ages. They may satisfy the conditions for accessing their pension before 6 April 2028, only to discover that certain payments can no longer be authorised once the new age applies.

Similar transitional provisions were introduced when the minimum pension age increased from 50 to 55 in 2010. This time, the government wants to ensure that people who have already become entitled to benefits can continue receiving them without interruption.

There is one important distinction: whether the client has already entered drawdown.

Someone who enters drawdown before 6 April 2028 will be able to continue accessing their taxable pension pot. A client aged between 55 and 57 who hasn’t entered drawdown by then could be prevented from starting a new arrangement until their 57th birthday.

AJ Bell described the change as “effectively lobbing a grenade into the retirement plans of many people who will be aged 55 or 56 in April 2028 and are planning on accessing their pension savings early”.

A grenade might be overstating it. For some clients, though, this could materially change when they can afford to retire.

Those planning to reduce their hours gradually may be particularly exposed. If pension withdrawals were expected to replace earnings from age 55, even a relatively short delay could leave an income gap. Advisers may need to look again at cash reserves and other investments, as well as when employment income is expected to stop.

Start by identifying affected clients, particularly those born between 6 April 1971 and 5 April 1973.

Check whether drawdown is already in place and when the client expects to begin taking benefits. If their income plan depends on pension withdrawals before age 57, there may be some work to do.

Waiting until April 2028 would certainly add excitement. It probably wouldn’t improve the advice.

If the changes create another batch of suitability reports, our professional paraplanners can help with the paperwork while you explain the new timetable to clients. That conversation will be easier now than it would be when an expected pension payment fails to arrive.