Plans to raise pension freedoms age could be scrapped

Government plans to raise the age at which people can gain access to their pension to 57 may be scrapped because it will cost the taxman too much.

The rise from 55 to 57 by 2028 was recently announced, but has now been brought into doubt as it is believed the two year delay could cost the taxman billions of pounds from retirement spenders at a time when Chancellor Rishi Sunak is searching for ways to repay massive government borrowing on measures to fight the coronavirus pandemic.

£33 billion

Since pension freedoms were first introduced in April 2015, £33 billion has been accessed from their pension pots by thousands of savers with many spending their saved wealth on things like home improvements, holidays and a new car, giving the Treasury a sizeable tax boost.

But now former pensions minister Steve Webb has claimed the rise in qualifying age will cost the taxman billions.

Win-win

He said: “Letting people access their pensions flexibly at 55 has been a win-win for the government.

It generated billions of pounds in extra tax and it was very popular.

“Given the number of unpopular things the Chancellor may be considering to fill the hole in his Budget, he may think twice about raising the age of accessing pensions.

No particular reason

“There’s no particular reason why this age needs to be 10 years short of pension age and many savers would thank him if he left things as they are.

“So this is no guarantee it will happen. By raising the minimum pension age the Treasury would lose out on tax receipts and it is an unpopular move.”

More popular

To date the pension freedoms have been even more popular than the then Chancellor George Osborne ever expected.

He calculated they would raise around £3 billion for the taxman in the first four years when, in fact, they raised £5 billion.

Under the freedom rules, savers are allowed to access their pension pot at 55 instead of waiting until they actually retire with 25% of withdrawals being tax free.

Later withdrawals are treated as income and taxed accordingly.

In line

The rise in qualifying age has been designed to bring it into line with state pension age which will be 67 by 2028.

It was first suggested in 2014, but the government didn’t pass the necessary legislation at that time.

Trends in longevity

Treasury Secretary John Glenn said: “In 2014 the government announced it would increase the minimum pension age to 57 from 2028, reflecting trends in longevity and encouraging individuals to remain in work, while also helping to ensure pension savings provide for later life.

“That announcement set out the timetable for this change well in advance to enable people to make financial plans and will be legislated for in due course.”