Complicating the normal minimum pension age

The decision to raise the normal minimum pension age (NMPA) from 55 to 57 was announced back in 2014 at the same time as pension freedoms. Clearly this wasn’t the big headline at the time, but now we have draft legislation, we are seeing news stories as some of the complexities of how the change is being implemented come to light.

The move itself isn’t the biggest issue – we’ve been here before when we went from age 50 to 55. Perhaps naively, some of us in the industry thought the change would be implemented in the same way. Instead, we have something far less simple.

The change is due to come into force from 6 April 2028, although schemes can choose to bring it in earlier (although the chances of any wanting to seems unlikely). The complications arise, as ever, with the transitional protection.

The Treasury has said that, along with uniformed services pension schemes, any scheme that gave the members the unqualified right to take benefits at age 55 under their scheme rules on 11 February 2021 (the date of the initial consultation) can keep that right for all members in the scheme on 5 April 2023.

This feels like such an arbitrary way to give protection – whether the scheme has this or not will depend on how a pension lawyer drafted a set of rules however many years ago. It could be as long ago as 15 years for all those schemes that took on new rules at A-Day.

Many schemes don’t give an unqualified right as a defence against scammers, so any request to take benefits may be subject to scheme administrator/trustee approval. This would only usually be withheld if there were concerns as to the reason for the request and whether there are other things going on behind the scenes. The issue with this draft legislation is that it gives schemes an incentive to remove this from their scheme rules, so they are not at a commercial disadvantage if further age rises take place on the same basis in the future. Which would be great news for scammers.

There are also complexities regarding transfers. A transfer from a scheme with a protected NMPA to one without protection will have the transferred benefits ring-fenced and still accessible at age 55. So two retirement ages in one scheme. If a block transfer is made with at least one other person, then all the benefits under the new scheme will inherit the protected age of 55, and this is without the need to crystallise everything at the same time. This will complicate matters from a planning perspective and will also cause issues with simpler statements and providing information on the pension dashboard.

The draft legislation is set to be included in the next finance bill, due to be published at the time of the Budget. So far, unified calls from the industry to slow this down and come up with a better alternative are falling on deaf ears at the Treasury.

This article was previously published by Sipps Professional