Remove the complexities and unfairness which surrounds the recent changes in the minimum retirement age from 50 to 55, including:

  • the detailed exemptions which allow some people to keep a minimum retirement age of 50
  • the detailed rules by which that exemption can be lost as a result of certain types of transfers from one pension scheme to another.

A fairer approach would be to revert to the minimum pension age of 50 for all, providing individuals with the maximum flexibilty.

If the government wishes to encourage working beyond age 50 then this could be done simply by limiting the availability of the Pension Commencement Lump Sum (commonly known as the tax-free cash) to retirements at age 55 or above. 

Anyone retiring before age 55 who takes a lump sum from their pension would be subject to income tax on that lump sum, unless retiring for reasons of permanent ill-health (which is already allowable at any age).

Why is this idea important?

From April 2010 the minimum retirement age went up from 50 to 55.  However, depending upon the precise wording of any particular pension scheme and the date on which an individual joined that scheme it is possible that they benefit from an exemption which allows them to still draw their pension from age 50.  That extends to both future contributions and pension accrual as well as that which had already built up before April 2010.

The operation of the exemption is complex and and, even more importantly, unfair that some people can continue to accrue a pension which they can draw from age 50 whereas others have to wait until age 55.

The government needs a lever by which is can encourage those to are well enough to work to continue to do so.  This can be done simply by flexing the availability of the biggest tax incentive to pensions – the tax-free cash – rather than the current set of complex rules around protected minimum pension ages.

Without the availability of tax-free cash at retirement, tax relief on pension savings is really just tax deferral – since pension payment are taxable.   So let's give people the most flexibility around when their pensions can be drawn, but keep the biggest tax breaks for those whose are either incapable of work or whose retirement accords with the needs of the country to keep people working and contributing to our nation's success beyond age 50.

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