NMPA Change

The Treasury is consulting on increasing the normal minimum pension age (NMPA) from 55 to 57 from 6 April 2028. This should be the dullest of dull consultations, hardly worthy of a mention, but in an odd policy twist it has the potential to turn into controversial legislation for advisers and pension members.

We have known since 2014 that the Government intended to increase the NMPA from 55 to 57 from 2028 but have been waiting for the details. This is supposed to mimic the increase in the state pension age to 67 at the same time. What promised to be (mildly) interesting was whether the increase would apply to everyone, or whether some would be protected.

Many of you will remember the increase in the NMPA from 50 to 55 in 2010, when some pension schemes could protect an earlier retirement age. The 2010 protection rules were constructed so protection was the exception, not applying to most members, and linked to membership of an occupational scheme (or section 32 policy).

Pension legislation geeks, maybe naively, assumed roughly the same rules would apply to the 2028 change. They were wrong. Instead, the consultation sets out that any member of a pension scheme – whether occupational, master trust, personal pension or SIPP – whose scheme rules gives them ‘an unqualified right’ to a pension age of earlier than 57 can protect that age for benefits under that scheme.

This means most pension scheme members could have a protected NMPA of 55 for some or all their pension benefits. Even if they are a fresh-faced, newly-automatically-enrolled 22-year-old, their NMPA could be 55 – despite it being over 30 years until they can call this protection in.

The sting in the tail is that this protected NMPA of 55 would be lost on transfer unless the member transfers as part of a block transfer – broadly where two or more people transfer from the same scheme to the same scheme at the same time.

This raises several issues.

1. Does this really meet the Treasury’s policy intent? The Government believes increasing the NMPA reflects increases in longevity and changing expectations of how long people will remain in work and in retirement. If this is the case, then it’s hard to believe it wanted most members to retain an earlier age. The consultation calls out special protection for members of the armed forces, police and fire services pension schemes, as well as those who already have a protected age. But if the intent really was to give widespread protection, then why mention this special protection?


2. It’s an arbitrary way to give protection. Whichever way you cut it, giving some people protection and others none will mean invoking an arbitrary approach, but this method seems particularly bizarre. Some pension schemes’ rules will give an unqualified right to take benefits earlier than 57; others won’t. Are we really saying that the ability to protect an NMPA of 55 depends upon how a pension lawyer drafted a set of rules five, ten or fifteen years ago?


3. It will affect the transfer market. Losing a protected NMPA of 55 on transfer has the power to stymie the pension transfer and consolidation market. People may want to hang onto the ability to take benefits from age 55 despite it being likely that most will never access pensions this early. Advisers may be nervous advising transfers that lose protection. And no doubt this will lead to new work around the block transfer rules.
   
   This is in direct contradiction to numerous Government policies pushing people to consolidate pensions – for example the small pots work, pensions dashboards, and the focus on value for money.

This leaves us asking whether there is a better approach to increasing the NMPA to 57 and giving a protected earlier age of 55 only to those who really need it.

Any protection of an NMPA of 55 must be simple. People need to be able to recognise whether they are affected without rushing for their nearest copy of the scheme deed and rules. Offering protection to only defined benefit schemes could be one approach. Also, protecting the individual based on whether their state pension age is 66 or 67 seems sensible too.

It could be argued both of these are arbitrary or too simple. But if that is the case, then we need to rewind and question why the Treasury is pushing ahead with any protection at all. If a simple solution doesn’t cut the ice, then either don’t offer protection to anyone (unless they are in a ‘special occupation’) or offer it to everyone – in other words, abandon the intention to increase the NMPA.

What should have been a dull consultation has turned into a confused mess. If we want people to save for later life, we must give them simple straightforward messages. And that includes when they can access their money.

This consultation isn’t final yet. The Treasury still has time to put together a simple protection regime. Let’s hope it does.

This article was previously published by Money Marketing