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FIRE in the hole [Members]

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I believe – Finumus here – that Financial Independence, Retire Early (FIRE) types give leveraging your mortgage to invest in equities an undeserved free pass.

I think it’s unnecessarily risky. And my opinion is shared by one of our fictitious protagonists today – a couple of 30-year old newlyweds named Ed and Caitlin.

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Minimum pension age increase: who’s caught out and who’s protected  post image

The normal minimum pension age (NMPA) is increasing from age 55 to 57 on 6 April 2028. Some people’s pensions protect them from the increase but the benefit can be lost if you transfer out.

Yet others could be caught out by a weird time-glitch.

The legislation as written will allow some to access their pension at age 55, but then lock them out again because they won’t be 57 when the pension age rises!

This piece of bureaucratic madness could affect over one million people according to former pensions minister, Steve Webb, who sounded the alarm in This Is Money.

It’s yet another pensions minefield and – if you’re not following the Department for Work and Pensions award-winning communications campaign – you might not know what’s going on. [Sarcasm is the lowest form of wit, y’know – Ed]

In this post we’ll cover who’s liable to lose access to their pension, and how to tell if your scheme offers a Protected Pension Age (PPA) of 55 or 56.1

Now you see it, now you don’t

Up to 5 April 2028 most people can tap into their pension from age 55.

Overnight, from 6 April 2028 the minimum pension age rises to 57.

Critically, there’s no transitional arrangement in place.

So if you’re not 57 on 6 April 2028, you will generally not be able to access your pension. Even if you were doing so because you were over-55 before that date!

In the case of someone born on 5 April 1973, they will have precisely 24 hours to enjoy their pension before it closes for another two years.

If that’s you, I recommend using a pension provider famed for their speedy customer service.

You might think such a ludicrous situation would be cleared up. But currently this is the state-of play – despite warnings from both within and without government.

Anyone born after 6 April 1971 but before 6 April 1973 is stuck in this bizarro world loophole.

The obvious solution is to allow anyone who started accessing their pension before the magic date to carry on as they were.

But that isn’t happening.

The law as it stands simply snaps shut your pension pot again until you’re age 57.

What does the Government say?

The Treasury referenced the problem in a July 2021 paper:

The Government also acknowledges the importance of establishing a clear position on the transitional arrangements. For example, members who do not have a PPA and have reached age 55 but not age 57 by 6 April 2028 and for whom a transitional issue may arise.

The Government will provide further advice on the proposed transitional arrangements and provisions in due course.

No such advice has been published. The change in the NMPA was written into law by the Finance Act 2022.

Since then, silence.

What does HMRC say?

Essentially: “Nothing to do with us, guv.”

If you search around the issue, you’ll find this query on the HMRC Community Forums where someone asks if they’ll be stopped taking their pension.

Three HMRC respondents duck the question by either linking to information that doesn’t help or offering a bureaucratic dead-bat:

Sorry, we cannot comment on future events as legislation may change.

What do others say?

Some pension providers are flagging the problem.

Fidelity says:

As you’ll be 55 before 6 April 2028 you’ll be able to take your pension benefits at any time from your 55th birthday up to 6 April 2028.

It’s currently unclear whether you’ll have to stop taking pension payments after 6 April 2028 (such as regular pension drawdown payments) until you reach the age of 57.

While government-backed financial educator Money Helper cautions:

People born between 6 April 1971 and 5 April 1973 may be caught in a transitional phase, possibly accessing their pensions at 55, then losing access from 6 April 2028 until they reach age 57.

This is definitely a thing

I’m personally caught up in this. And I must admit I’d assumed some kindly government fixer would close the loophole.

It just seems nuts. But there’s a reason why political satire has such a rich tradition.

And now there’s less than four years to go. The planning window is perilously short if nobody does anything about this.

One option is to take enough cash out of your pension to cover the period when it’s padlocked again.

A 5 April 1973 baby will need to withdraw an extra two years of cash to get them through the tax years 2028-29 and 2029-30.

That’s likely to mean a big tax hit, unless you use your tax-free cash.

Check out this piece on the pension drawdown rules to understand how to use phased drawdown to take the tax-free cash you need without overwhelming your ISA allowance.

The article also covers the emergency tax issues associated with drawdown and the disadvantages of taking uncrystallised funds pension lump sum (UFPLS) payments.

Personally, I’m not keen on incinerating tax-free cash that can be used to grow your future tax-free space in ISAs, if left invested. Especially as it seems likely that taxes will rise in the future.

But everyone has their own priorities. Some may decide to take the tax hit at 20% but use tax-free cash to avoid tipping over the higher thresholds, for example.

Is your pension age protected?

Some pensions can be accessed at age 55 even after the 6 April 2028 NMPA rise.

This Protected Pension Age (PPA) benefit applies to:

  • A pension scheme that gave its members the unqualified right to take benefits at age 55 under their scheme rules on 11 February 2021.
  • You also had to be a member of the scheme before 4 November 2021, or in the midst of a transfer.
  • An ‘unqualified right’ means that you do not need the consent of anyone else (for example, trustees or scheme administrators) to take your pension benefits.

It’s best to check the status of your pensions directly with the scheme administrators.

I didn’t think any of my pensions qualified. But then I discovered that Fidelity’s SIPP offers a PPA of 55, providing you held it before 4 November 2021.

Stick or twist

You can lose your PPA if you transfer your pension. A new provider doesn’t have to honour your protection, so check that they will if retiring at 55 sounds nice.

But there’s a twist:

  • Money transferred from your protected scheme is ring-fenced once it hits your new pension.
  • Only that money benefits from your PPA in the future.
  • The rest of your pot (including ongoing tax relief, employer contributions and investment growth) will only be available from age 57.

But there’s… a twist within the twist!

The above rules apply if you arrange your transfer as an individual in a move known as – wait for it – an individual transfer.

But under a block transfer your past and future contributions qualify for the PPA even if the new scheme doesn’t offer any such protection.

(Ever get the impression that HMRC is run by the puzzle-loving fiend, The Celestial Toymaker?)

A block transfer involves two or more members of a pension scheme transferring to the same new scheme at the same time.

Alright, I feel like I’m addressing an ever dwindling proportion of the population with each passing sentence, so let’s finish this bit up.

Money transferred from a non-qualifying pension can gain protection if you shift it to a qualifying scheme that you joined before 4 November 2021. The People’s Pension makes this clear in their explanation of the rules. (Hat tips to Monevator readers WinterMute and PhilosoFIRE for pointing me in the right direction on this).

All the same, please ask your scheme’s administrator to confirm this in writing to you. Don’t rely on all pension schemes applying the rules the same way – the system is full of quirks and kinks.

Apparently a pension in drawdown can transfer without the loss of your PPA. But please double-check this too, as I only found one single source making that claim.

Minimum pension age rising to age 58 and beyond?

The original government plan was to tether the NMPA to the State Pension Age. The idea being that your private pensions could be ransacked no more than ten years before the State Pension.

However, this link wasn’t included in the Finance Act 2022. Perhaps it’ll be legislated for by a future Parliament. Perhaps it’s gone to the Happy Policy Unit in the Sky.

Either way, it’s not a thing for now.

What a state

Well, it’s great to see that the Government has learned the lessons of their last failure to properly inform people of looming pension changes. [Second sarcasm violation! You’re on a final warning – Ed]

I get that the time-limited pension issue only affects a thin slice of the population. But it could have quite a serious impact on those it does catch – especially as many people’s pension plans are touch-and-go anyway.

Moreover, I’m quite pessimistic about the chances of anyone bothering to solve the problem. I have a feeling it may not be the top priority of the incoming government – whoever that may be. [Fired! – Ed]

There’s one final takeaway here for anyone who’s made it this far down the page. [Hmm, still here? – Ed]

The government machine is continually screwing things up and often finds it easier to move the goalposts than to properly fix them.

So if you’re planning for the long-term, make allowances. Make your plans as generous as possible with as much wiggle room as a pair of Victorian football shorts.

Take it steady,

The Accumulator

  1. Only a few schemes explicitly offer a PPA of 56. So we’ll just refer to a PPA of age 55 for the rest of the article. []

Weekend reading: Commuting is so 2019

Our Weekend Reading logo

What caught my eye this week.

Bosses continue to ask their staff to get back into the office more. And workers continue to reply by email from their laptops: “Yeah, maybe not…”

You don’t need to look hard for evidence. My local gym – located in a business park – is dead on a Friday, for example. Or check out the slump in rail season ticket sales in the UK:

Source: Mail Online

The Mail Online reports (my bold):

There were 60.3m passenger journeys made using season tickets in the latest quarter of January to March 2024. This was a 3 per cent increase on the 58.7m journeys made in the same quarter last year.

But season tickets made up 15 per cent of total ticket sales in the latest quarter, which was less than the 16 per cent in the previous year and down 24 percentage points from 39 per cent four years ago.

I’m sure the cost-of-living crisis won’t have helped, either, when five out of the most popular season tickets into London now cost over £5,000.

The dearest is £7,150 a year!

Paying that kind of money to sit on a train for as much as an hour or more – only to work less efficiently in an office when you get there?

No thanks. I can easily see why people are choosing to re-wire their work lifestyles instead.

So can plenty of others – it has been a bountiful week for coverage of the ongoing hybrid work reconfiguration:

    • Invested in the WFH argument? Home in on the evidence – FT
    • The benefits of hybrid working [Research]Nature
    • Inside Dell, workers rebel against return-to-office order – Semafor
    • How to be happier at work – A Wealth of Common Sense
    • Bosses are having the hardest time adjusting to hybrid work – CBNC
    • Cultures of destruction are destroying workplaces – Psychology Today

Best wishes to a fellow finance blogger

I was saddened to learn this week that US personal finance writer Jonathan Clements has received a very unfortunate medical diagnosis.

A well-known financial columnist in the US, Jonathan has more recently put his heart and soul into his own personal finance website, Humble Dollar.

I’ve never met Jonathan. But I’ve read his articles and most of those of his contributors for many years. I link to Humble Dollar almost every week, and have especially enjoyed watching Jonathan deftly triangulate his site to find its own unique voice and niche.

I’ve also learned from reading how Jonathan’s thoughts have evolved with respect to his own post-work life and retirement. Which of course only makes his sudden medical challenges the more poignant.

Both myself and TA homed in on the same section of Jonathan’s article about his cancer diagnosis:

The cliché is true: Something like this makes you truly appreciate life.

Despite those bucket-list items, I find my greatest joy comes from small, inexpensive daily pleasures: that first cup of coffee, exercise, friends and family, a good meal, writing and editing, smiles from strangers, the sunshine on my face. If we can keep life’s less admirable emotions at bay, the world is a wonderful place.

We send Jonathan our very best wishes for his treatment and journey.

And everybody please enjoy this sunny weekend.

[continue reading…]


FIRE pioneers are finding the path for everyone

An image of a person warming himself with a fire to represent a FIRE pioneer

Nearly 20 years ago, Channel 4 unleashed the TV comedy Nathan Barley – to the general disinterest of almost everyone.

The six-episode series saw the eponymous Barley navigating the hipster enclaves of East London on a child’s bicycle, as he attempted to become a ‘self-facilitating media node’.

Nathan Barley – an early work from Black Mirror creator Charlie Brooker – found a few cult fans.

But it confused everyone else.

I suspect you had to occupy a specific youthful London media bubble to get all the references. Of the 700,000 viewers that Nathan Barley did attract, I’d guess 650,000 were there to laugh at the creative swearing.

There are other reasons why the show bombed. Parodying Internet culture seemed passé in the hiatus between the Dotcom crash and YouTube and Facebook. Almost nobody back then shared their life online in video the way Barley did. East London’s Shoreditch already seemed ‘over’ if you were a hipster who’d arrived in the early 1990s. And Barley’s ‘Rise of the Idiots’ theme perhaps seemed frivolous while war raged in the Middle East.

Watch Nathan Barley now though and it’s a vision of our everyday:

The idiots won, obviously.

People do the funniest things

If you’re under 30 then, you might not find Nathan Barley very funny for a different reason. Which is that its world and characters no longer seem strange at all.

It’s hard to believe, but everyone being glued to their mobile phones in Nathan Barley was meant to be laughed at. The ubiquitous mobiles seemed over the top in 2005. This was two years before the first iPhone, remember.

But today my website analytics tell me that more than half of you will be reading this on a smartphone.

We’re all Nathan Barley now.

Pouring cold water on the FIRE pioneers

A lot can change in a couple of decades to turn the peculiar into a prophecy.

And I suspect a similar transformation of social norms will happen with FIRE1 over the next 20 years.

FIRE broke out of its Internet backwater a few years ago. Since then we’ve probably seen as many writers deriding it as actually investigating how FIRE practitioners look to achieve financial independence.

True, Charlie Brooker hasn’t yet created a drama starring Mr Money Mustache battling the Internet Retirement Police.

But FIRE’s critics regularly smirk at those of us who…

Want to quit boring jobs to pursue our passions“These precious snowflakes don’t realise that life is meant to be hard graft!”

Aim to live off saved assets rather than work“Madness! Who’d let their well-being depend on the whims of Wall Street?”

Target a 4% safe withdrawal rate“Nobody knows when the stock market will crash! Future returns aren’t guaranteed! How can FIRE followers call any withdrawal rate ‘safe’?”

Study life expectancy forecasts to figure out how long our money will last“Bit morbid, isn’t it? My dad didn’t think about any of this. He just did his job for as long as he could.”

Put something other than work on a pedestal “Nobody cares about your watercolour paintings, salsa dancing, or your trip to Choquequirao.”

Pursue unrealistic financial goals “FIRE might make sense for a few richly-paid tech and finance bros. But most people have zero chance of becoming financially independent.”

I could go on. You often hear healthcare cost concerns in the US, for example. Others argue it’s selfish to spend your kids’ inheritance on your living expenses.

FIRE pioneers are mapping out our future

Most of these complaints have some basis in reality. Few would deny it’s hard to amass a sufficient wodge to make FIRE work. Nor to husband your precious pot to go the distance.

Heck, these challenges are what keeps Monevator in content.

From exploring how to max out a big pension to portfolio diversification to the rebranded Sustainable Withdrawal Rate, these are frontier lands, with hostiles as likely to be around the next corner as a nugget of gold.

However I’d suggest many of these issues are simply being run into by FIRE pioneers first, rather than by them uniquely.

We’re all in it together

Consider the big trends in personal finance and demographics facing today’s workers:

End of Defined Benefit pension schemes for most of us – Many a FIRE critics’ attack vector has zeroed in on the unseemliness of thinking about your future retirement income – early or otherwise – in your 20s and 30s. But FIRE pioneers are only getting their heads around this ahead of the rest of the population. Paternalistic company pensions are almost a relic of history.

Pension freedoms and the ‘pots for life’ talk – Ditto wondering how best to invest your pension, drawdown an income, or manage your money to make it last. Today’s pensioners often hit these questions without giving them any thought beforehand. Future pensioners who’ve hung around geeky FIRE locales debating the 4% rule should be better at managing their own money.

Increased longevity and (potentially) longer retirements – Someone retiring early at 45 clearly needs a good handle on how long they’re likely to live. Otherwise, their retirement funds are liable to flatline before they do. But with today’s 65-year olds already set to live on average into their late 80s (and newborn girls having a life expectancy of 90) a 45-year old retiree has more in common with a 60-year old retiree than not.

Longer and more flexible working lives – I ​don’t personally believe​ it’s best for most people to fully retire in their 40s, say. Increased longevity is one reason why. But me and my fellow flexi-FIRE types who instead ​reinvent the rules of work​ and retirement to suit our lifestyles – and fast-evolving economic reality – won’t seem so unusual in 20 years’ time. By then everybody will be at it.

Shorter job tenures, more job hopping – Older generations saw restructuring, offshoring, and outsourcing destroy the notion of a job for life. Now younger generations are job hopping faster than ever. FIRE seekers aim to max their income – and savings – so they can potentially opt-out ASAP. They chase the best opportunities rather traditional career paths. Seems prescient.

Interest rates and inflation – Macroeconomics matters long-term and – disasters notwithstanding – that long-term is coming for more people. High inflation, say, wasn’t such a risk when you only expected a fixed annuity to see you through a ten-year-long retirement. But just ask anyone under-75 with a fixed income how they feel about the 30%-plus inflation we’ve endured over the past few years. Ever more of us will become money geeks in order to understand these risks.

Less family support, more going it alone – Some deride FIRE singletons or couples who have no kids. “Easy mode!” they cry. But fertility rates across the wealthy world have more than halved since 1960. More people than ever have no children at all. This doesn’t just make FIRE more realistic for them (according to the critics’ own terms). It also means no kids to help look after them later, which means yet more DIY-ing through the challenges of old age.

Of course a lot of other things could happen over the next 20 years too. Even if we dodge a nuclear or climate-related catastrophe, there’s the potential of AI coming for our jobs.

Even so, I struggle to think of a future in which the world looks more like that of a salaryman in Surbiton in the 1970s than a FIRE pioneer on a laptop in 2024.

No one is a prophet in their own land

In literature and philosophy you often find that those best able to criticise a topic are also the ones most capable of seeing to the very heart of their target.

For example while it’s hardly flawless, you won’t find a better foreshadowing of capitalist consumer culture than Karl Marx’s Das Kapital.

Perhaps it takes an external perspective to see the broadest trends. Whereas those actually living the lifestyle of tomorrow are just getting on with it.

Nathan Barley filmed himself ‘pranking’ his hapless co-workers because it was witless fun, not because he anticipated YouTube clickbait. He was on the money in trying to be a ‘media node’. His problem was he got there before Instagram and TikTok birthed the influencer economy.

When I think about FIRE today, I see something similar going on. FIRE’s tenets offer an early glimpse of a widespread future.

Those of us pursuing financial independence might like to think we’re outsiders seeking a very different path to the masses.

But it seems probable to me that the questions FIRE pioneers are attempting to answer will soon be asked by almost everyone. We’re just ahead of the crowd.

  1. Financial Independence Early Retirement []