State pension age and normal pension age – what’s the difference? | Personal Finance | Finance
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They work very differently from one another and there are different ages at which people can normally access them.
People pay into their state pension through National Insurance, which is automatically taken from payslips.
What is the state pension age (SPA)?
The SPA is currently 66 and is set to rise to 67 by 2028.
This is the age at which people can access their state pension, although they don’t have to.
If they don’t wish to withdraw their state pension, they have the option of deferring, which adds to the value of the pension corresponding to how long it is deferred. It can make a big difference.
When the state pension was unintroduced in 1948 the state pension age was set at 60 for women and 65 for men.
It wasn’t until almost half a century later that this was changed to bring the women’s age in line with men’s.
Since parity was achieved, the state pension age has increased again
What is the normal minimum pension age (NMPA)?
The NMPA is currently 55 but set to increase to 57 in 2028, in harmony with the state pension increase.
The NMPA is the same for men and women.
It is the age at which people can begin to withdraw cash from their private pension without incurring a tax penalty.
The NMPA is not like the SPA and only a small portion of workers will be able to retire aged 55.
There is, however, a way to avoid the age hike if people opt into a pension scheme with specific rules allowing for people to withdraw from 55 by 2023.
There are other exceptions as well such as for those forced into retirement by ill health as well as firefighters, police officers and those in the armed forces.
The age changes mean that someone who retires in 2028 aged 57, they would have to wait 10 years before they could claim their state pension.
There are plenty of other differences between the two types of pension.
The state pension increases in value according to the triple lock, which ties increases to the highest of inflation, wage growth or 2.5 percent.
Whereas private pensions will be invested in a mixture of equities, bonds and property and can be adjusted to match the level of risk someone is comfortable with.
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