Major pension glitch which implies you would be given entry to your pot just for it to be snatched away once more. But there’s a small window to reserve it in case you act NOW: TANYA JEFFERIES

If you are one of the two million people celebrating your 55th birthday over the next couple of years, then beware – there’s a most peculiar quirk in pension rules that you must get your head around.

Turning 55 is the milestone age when you are finally allowed to start dipping into your private pensions, which includes any workplace schemes you’ve saved into or any money you’ve set aside independently.

But that age is going to rise abruptly, jumping overnight to 57 in just over two years’ time, in April 2028, to keep in line with the state pension age, which is gradually increasing from age 66 to 67.

This jump will create a strange anomaly that will start affecting people as early as next month.

Anyone who turns 55 from April 6 this year onwards will have to grapple with new ‘hokey cokey’ rules where their access to their pensions could be switched on and off again until their 57th birthday.

In simple terms, they will have a small window to access their pension around their 55th birthday, after which they will no longer be able to withdraw any money until two years later.

Confused? It’s a fiendishly complicated quirk that the Government has yet to fix. Pension experts are decrying the confusion it will cause and the potential it has to disrupt many people’s carefully laid financial plans.

So what exactly is changing and how will it affect the way you take your pension?

Why are the rules changing?

Currently, anyone can start to draw money out of their pensions at the age of 55. This is a popular pensions rule, known as the ‘minimum pension age’, that gives a lot of savers the freedom to access their money if they want to retire early, for example.

This rule was created when the state pension age was 65, and as a rule of thumb, the Government tries to keep a ten-year gap between private pension age and state pension age.

However, the minimum pension age was left at 55 when the state pension rose to 66 in 2020. Former Pensions Minister Steve Webb, now a partner at pension consultant LCP, explains: ‘It was decided that changing it to 56 in 2020, when state pension age hit 66, and then again to 57, when state pension age hits 67, would be too complex, so they held it at 55 until April 2028.’

However, the state pension will begin to rise once again, from 66 to 67, from April this year.

The increase will unfold over the next two years as it’s phased in, so there will be periods when the state pension age is 66 years and between one and 11 months.

A month will be added on to the state pension age each month from April 2026 onwards until April 2028 when everyone will reach pension age at 67.

The minimum pension age will rise to keep a ten-year gap but, unlike the state pension age, it will go up from 55 to 57 overnight.

What will change and who will the bizarre quirk affect?

An estimated 1.9 million people will reach their mid-50s from April 6 this year and April 5, 2028 – meaning those born between April 6, 1971 and April 5, 1973 – and are in the group potentially affected.

Not everyone starts tapping their pension at the turn of their 55th birthday, and in fact money experts say it’s better to wait if you can to give your retirement fund longer to grow.

However, it can be a financial godsend to those who plan to retire early, have a big ticket item they have set their heart on, or decide to get shot of their mortgage as soon as possible.

Imagine, then, that you get access to your pensions, only to have that right swiped away again, and be barred from withdrawing any more money for some period lasting up to two years.

Under the rules as they stand, from the stroke of midnight between 5 and 6 April 2028 onward, individuals will have to wait until their 57th birthday to regain access to their money.

For those turning 55 next month, that will mean there will only be a couple days or weeks when they could be affected, but others will have to hang on for much longer, and some will only get a fleeting chance to get their hands on their pension at age 55.

For example, someone turning 55 in May this year will be able to access their pension immediately and until the minimum pension age increases in April 2028, at which point they will be 56 and 11 months old. They will have to wait one month until their birthday that May to regain access.

Webb gives another example: ‘Suppose, for example, that you were born on April 5, 1973. In this case you will reach age 55 on April 5, 2028 and can therefore immediately access your pensions on your 55th birthday,’ he says.

‘However, if you miss that day – perhaps because you are busy celebrating your birthday – you will wake up the next to find that you now cannot touch your pensions for another two years.’

This is because the minimum pension age will rise to 57 on April 6, 2028.

He says the previous overnight increase in the minimum pension age for private pots was from 50 to 55 and happened in April 2010.

But that was before the pension freedom reforms in 2015, when nearly everyone still had to buy an annuity to provide an income in retirement, and didn’t have the unfettered ability to take out cash and spend their pensions as they liked after a set age.

What happens if you get it wrong?

You normally face a hefty tax charge if you break the age rule. Penalties on early withdrawals are up to 55pc depending on how much money you take, and it’s unclear whether HMRC will waive them under these circumstances.

You should therefore operate under the assumption they will be imposed. Reputable pension firms should check your age and stop you in time but there’s no guarantee they will.

Many will not have private pensions, or do but don’t want to access them early, while others will have pensions with ‘age 55’ written into their terms and conditions.

In the latter case, savers can dodge the problem and still get their money from then on if they want – we explain how to check this below, and why it’s best to avoid transferring your pension in this scenario.

Will this confusing age rule be fixed?

A way to prevent savers falling foul of these ‘hokey cokey’ pension access rules is being sought by tax officials, but there are no details yet.

A bulletin issued by HMRC two weeks ago says: ‘Work on the transitional regulations that will support the implementation of the normal minimum pension age increase is ongoing.

‘These regulations are intended to ensure that individuals who are entitled to and have already begun receiving their pension benefits can continue to do so without interruption.’

That means there’s still significant uncertainty for people who are aged 55 or 56 on April 6, 2028, says AJ Bell’s head of public policy, Rachel Vahey.

It’s unclear if only those who have already taken out a slice of their pensions before that date will still be allowed access, she points out.

‘This lack of clarity is causing confusion and making it difficult for this group to plan for their retirement. HMRC now needs to prioritise passing clear, updated regulations so people can make informed decisions about their pension savings with confidence.

‘There has been plenty of time to get this sorted, so this delay is very frustrating,’ she adds.

‘While HMRC might argue that the rules on pension access don’t change for another two years, people turning 55 between now and then will have questions about how this impacts them. They need this clarification now.’

There is a relatively simple fix available to the Government, according to Gary Smith, financial planning senior partner at Evelyn Partners.

It can just let people who turn 55 in the run-up to April 2028 keep the right to access their pensions, whether they have previously touched them or not. It’s going to ‘cause a lot of complexity and confusion’ if that doesn’t happen, he warns.

What to do if you are affected

The first thing to do is check the terms and conditions on your pensions to find out the ‘protected retirement age’, says Smith. This is the age at which you can access your money, regardless of the minimum pension rule.

Some will state 55, and some older ones even say 50, rather than the standard minimum pension age.

Most of his customers with lower protected ages avoid moving these pensions to another provider, to retain the flexibility of making early withdrawals if they want, for example to pay off a mortgage.

You should check each individual pension plan you hold, including where you might hold more than one plan within an employer’s scheme, if you have worked at the same place for a long time.

Smith says if you intend to retire at 55 or will want cash around then, you should build up your Isas in addition to your pension to bridge you over. You will miss out on pension tax relief, but there is no age limit on tapping Isas.

Another option, if you and your partner are different ages, is to put more money in whichever pension you can draw on sooner, he suggests.

If you are turning 55 in the next few years and therefore affected, Smith says you should plan to make withdrawals so you have enough to tide you over just in case the Government doesn’t fix the issue, and you lose access for a while after April 2028.

Rachel Vahey of AJ Bell says if you might be affected, don’t do anything without careful planning.

‘Unless you’d planned to access your pension age 55 or 56, this won’t make any difference to you. If you are planning to access your pension and have concerns about the increase to age 57 causing some disruption, try to resist the temptation to second-guess what Government may do.’

She adds that the worst thing you can do is panic and tap into your pension for no good reason, because although some may choose to take their tax-free cash, withdrawing income from a pension in your mid-50s may not be the best move.

‘Most people will continue working and building up their pension into their 60s. It’s worth talking to a financial adviser if you’re thinking of taking pension income full stop, and certainly if you plan do so in your 50s.’