Transfer fireworks

In the space of 24 hours earlier this month, we had two new pieces of legislation which impact pension transfers. The fireworks started early on the anniversary of the discovery of the gunpowder plot, with the publication of the Finance Bill (No. 2), which includes the new rules on changes to the normal minimum pension age (NMPA). Bonfire Night itself caused less of a bang with the introduction of the new rules on the statutory right to transfer.

The events leading up to these two new sets of rules have been markedly different.

Looking at the NMPA changes first – the intention to increase the NMPA from 55 to 57 was announced in 2014, but all was quiet until a consultation landed on 11 February this year. The scope of protection available came as a surprise and, for any non-uniformed pension schemes, was widely questioned. Also of concern were the rules around transfers. Initially, the proposal was that, if a block transfer took place from a scheme with the protected age to one without, the new scheme would inherit the protected age. Questions were raised as to the arbitrary nature of this, as you could transfer and keep the protection if you had a buddy, but not if you were flying solo.

The response came back with a proposal that the pension industry widely regarded as making things worse – and no further consultation was in place to deal with the objections. The introduction of single transfers where only the transferred benefits retain the right to the lower NMPA mean there is now potential for two retirement ages within one scheme and ring-fencing requirements for decades to come. Despite lobbying from all corners of the pension industry, this was confirmed in the recent Finance Bill. And this isn’t something that just kicks in in 2028; this has an impact now. If you transfer today from a protected scheme and want to keep that protection on the transferred rights, your new scheme will have to ringfence them.

The lobbying did result in one change though: also proposed in the Treasury’s consultation response was a ‘transfer window’, whereby if you joined or transferred into a scheme with a protected age by 5 April 2023, you would benefit from the protection. The Bill closed this window on 4 November. Whilst this is good news and will reduce scammers using this as a way of pressurising people to move their pension, it is just a shame the Treasury didn’t properly consult on all the complications the protection and transfer rules have created.

Whilst all this has been going on, the DWP has been making changes to the statutory right to transfer. This is to give trustees the right to block a transfer if they believe something untoward is going on. The initial changes proposed would have meant almost every transfer could only have proceeded after the underlying customer had answered a series of scam-related questions – even if they were transferring to a well-known insured scheme or investment platform. The potential for clogging up the whole transfer market was huge. Fortunately, the DWP engaged extensively with the pension industry and, importantly, listened. The legislation, which comes into force on 30 November, is far more balanced, allowing more discretion for trustees and the use of referrals to MoneyHelper transfer scams guidance where genuine concerns are held.

The Treasury has said that “lessons will be learned” from the way the NMPA increase has been handled. Let’s hope that it looks to the DWP as an example and realises fireworks are not always needed.

This article was previously published by Sipps Professional