The increase in pension age to 57 from 6 April 2028. In Pension Scheme Newsletter 180,
The normal minimum pension age will increase to age 57 on 6 April 2028.
As part of the initial consultation in 2021 the then Government acknowledged it needed to provide a clear position on transitional arrangements. The key question being how will those who have reached age 55, but not age 57, on or before 5 April 2028, be treated?
The latest HMRC Newsletter states that, whilst they are still working on the transitional regulations, they are ready to provide details of their intentions.
The proposed transitional regulations are in addition to any form of protected pension age that would already enable someone be able to take their benefits earlier than age 57.
Pension payments (including funds in drawdown)
Where an individual is age 55 or 56 on 5 April 2028 and has already moved funds into drawdown, purchased an annuity or become entitled to a scheme pension, those benefits can continue to be paid. They are treated as having reached aged 57 immediately before their first post 5 April 2028 payment.
HMRC’s examples
Pension payments start pre 6 April 2028
A member turns 55 in August 2027 and becomes entitled to a scheme pension, with the first instalment paid in December 2027, at a time when they are above the existing normal minimum pension age of 55. When the normal minimum pension age increases to 57 on 6 April 2028, the member is still only 55, and therefore below the new normal minimum pension age. However, the pension already in payment continues without interruption as an authorised payment.
However, if the same member wishes to start another pension or crystallise further benefits on or after 6 April 2028, they will need to wait until they reach age 57 in August 2029, for it to be an authorised payment, unless a protected pension age or ill-health exception applies.
Designation to drawdown pre 6 April 2028, first payment made after 5 April 2028
A member designates funds into drawdown on 30 June 2026 aged 55. However, they do not take their first payment of drawdown pension until 2 May 2028 when they are aged 56.
The transitional regulations will provide that the member is treated as having reached normal minimum pension age for the purposes of the payment of drawdown pension made from those pre 6 April 2028 designated funds. The drawdown pension payment will be an authorised payment.
The same principle will apply where the member became entitled to a scheme pension or lifetime annuity before 6 April 2028 having reached normal minimum pension age, but the first payment of scheme pension or annuity is not made until on or after that date.
Uncrystallised Funds Pension Lump Sums (UFPLS)
Where an individual is age 55 or 56 on 5 April 2028, they will have to wait until they reach age 57 to take any payments as an UFPLS.
Any UFPLS payments made before 6 April 2028 which were authorised payments at the time will remain authorised payments
HMRC’s example
A member reaches age 55 on 1 March 2027 and takes an UFPLS on 1 June 2027. As the member had reached the normal minimum pension age of 55 at the time the payment was made, the uncrystallised funds pension lump sum is an authorised member payment. The member cannot take a further UFPLS on or after 6 April 2028 until reaching the normal minimum pension age of 57.
STATE PENSION REFORM
Ideas for state pension reform. The Tony Blair Institute has proposed a replacement for the State Pension
State pension cost
Source: OBR July 2025
The rising cost of the state pension was addressed last year by the Office for Budget Responsibility (OBR) in its Fiscal Risks and Sustainability Report. As the graph above shows, the combination of the triple lock and demographics are set to drag up Government expenditure on pensions over the next 50 years. However, as Rachel Reeves was reminded in 2024, pensioner benefits are the third rail of UK politics. As a result, the triple lock continues to survive and, if at the next election one party promises to maintain it, then all the others will feel obliged to do the same. A restructuring is always for later, regardless of what the OBR, Institute for Fiscal Studies (IFS) and others project as the growing bill for pension procrastination.
Enter the Tony Blair Institute (TBI), which has just published proposals for a ‘Lifespan Fund’, designed to replace the state pension from 2030 and to bring the 2070 cost of pensioner benefits down from the OBR’s projected 7.7% of GDP to 5.5% (against a current 5%). The TBI regime incorporates three major reforms:
The end of the triple lock. The triple lock is effectively an earnings link plus mechanism for annual pension increases. At outset it was not expected that the price inflation and 2.5% floor elements would play much of a role, but the economic environment since 2010 has confounded that forecast. The TBI proposal is for a smoothed earnings link, a solution previously put forward by the IFS. Under this approach, pensions would rise in line with average earnings growth each year but would rise in line with inflation in years when earnings growth fell below inflation – for example, during a recession – so that the real value of the pension never falls. The link with inflation would then be maintained until real earnings recovered to their previous level, at which point the link to earnings growth would be re-established. This would ensure that incomes are protected during downturns while maintaining the purchasing power of pensioners.
Great payment flexibility. The Lifespan Fund would not only be about retirement benefits. It would include an option to provide “a limited, rules-based amount of support during defined periods such as unemployment, approved retraining or caring”. Access would be possible only when a minimum balance had been built up – rising from a minimum of five years of entitlement for those under 35 to ten years for those aged 55 and over – and withdrawals could not take the fund below this level. Any pre-retirement drawdown would need to be rebuilt on return to work by paying higher contributions.
End a fixed state pension age (SPA). Arguably, the most radical TBI idea is to do away with a fixed SPA. Instead, the aim would be to create a uniform 20-year entitlement, mirroring the approximate average lifetime benefit value of the current system. The TBI suggests that, subject to various safeguards, individuals could choose when to retire and then receive “a personalised state-pension payment calculated on an actuarially fair basis, using information about their age and health circumstances”, potentially based on NHS data.
The logic behind the uniform value approach is that it addresses a criticism of the current system with rising SPAs, where those in poor health receive the same payments for a shorter period than their healthier (and often wealthier) counterparts.
Comment
The TBI proposals have not had the best of receptions. Steve Webb, the former Pensions Minister and now a partner at LCP, echoed the thoughts of many in saying, “It would be a huge backward step to replace [the state pension] with something fiendishly complex and highly intrusive, and which would take many decades to implement in full.”