55th birthday surge prompts pension tipsPension
A surge in 55th birthdays and the fifth anniversary of pension freedoms were unintentionally timed this year to coincide with the current coronavirus pandemic.
According to new research, a record number of us are set to celebrate the milestone of our 55th birthdays this year.
Age 55 is a relevant age for pension purposes, as it’s the minimum age at which you can access the money in your pension pot.
Insurer Aviva found that 2020 is the year when the number of people reaching age 55 is set to peak following the introduction of pension freedoms in 2015.
In fact, more people are due to celebrate their 55th birthday this year than any other birthday age.
Nearly 18,000 people a week will turn 55 in 2020, with a total of almost one million 55th birthdays during the year.
When compared to a decade earlier, when a wave of post-war baby boomers turned 55th, the number of 55th birthdays this year is even more significant.
Of the ten most populous ages in the UK, six are set to reach their 55th birthday within the space of the next decade.
But this peak in minimum pension age comes around as the UK continues to grapple with the challenges created by the coronavirus pandemic.
Alistair McQueen, head of savings and retirement at Aviva said:
The pension freedoms have been hugely popular since their introduction in 2015. To date, more than £35bn of taxable pension wealth has been withdrawn by more than 1.4 million people.
But this year, pensions freedoms are due to boom like never before, as more people celebrate their 55th birthday than any year prior, and likely more than we will ever witness again in a single year.
This spike comes at the same time as the coronavirus pandemic has stopped the UK economy in its tracks. Early insight suggests that the nationwide lockdown has increased the financial strain on millions of households. 6.3 million jobs have been furloughed, and 85% expect the general economic situation to get worse over the next 12 months.
Age 55 marks the point at which we can access our pension funds. But we must be cautious in taking any short-term action that could be detrimental in the long-term.
Alistair shared five key points to consider when accessing any money from your pension pot.
1 – You are in control.
55 is the age from which we can access our pension wealth, but there is no need to act at this age. You are in control of when and how you access your private pension wealth, from age 55. And remember it could be needed to fund your life into your eighties and beyond.
2 – Taxation.
25% of your private pension wealth is usually tax-free, but the rest will be taxed like other income. The rate at which you access our money can, therefore, have big implications for tax you may pay.
3 – Annual allowance.
The majority of people are allowed to save up to £40,000 in their pension each year. But the act of withdrawing taxable money from a private pension could reduce the amount we can subsequently save, to a maximum of £4,000 each year. This reduced level could have significant implications for your future retirement plans.
4 – Scams.
Sadly, fraudsters follow the money, and there is a fear that pension scams targeting will increase for those at their 55th birthday.
Since 2019 it has been illegal to make unsolicited contact with people about their pension. So, if you receive a cold call or unexpected text, just hang up or delete it.
Do not feel pressured to rush any decision that could have implications for the rest of your life.
5 – Pension Wise.
The government-backed Pension Wise service provides free guidance about all things related to the pension freedoms to those aged 50 or over and have a personal or workplace pension.