HMRC has confirmed transitional regulations for accessing pension funds for those who turn 55 in the next couple of years.
But its proposed changes have been criticised by advisers who say they offer “minimal flexibility”, and may encourage some savers to cash in more of their pension funds early.
It had previously been announced that the age at which people can access their pension funds will rise from 55 to 57 from 6 April 2028. This age is known as the ‘normal pension age’.
However HMRC hadn’t set out details on what happens to those who reach 55 before then, but will still be under 57 by the 6 April 2028. It has today given an indication of what future rules will look like – although a full draft for consultation has yet to be published.
In a newsletter published today, HMRC has said these transitional arrangements are designed to to ensure those who have become entitled to their pension benefits can continue to take these ‘seamlessly’.
However advisers have said the new regime is unlikely to deliver this. HMRC gives examples of how its new rules might work for those born after 6 April 1971 but before 6 April 1973. This suggests these affected individuals wouldn’t be able to crystallise benefits during the period between 6 April 2028 and their 57th birthday.
HMRC says that if they had crystallised pension benefits prior to this date and moved funds into a drawdown, annuity or scheme pension arrangement, then they would be able to continue taking income from those funds. However, they wouldn’t be able crystallise any further benefits until age 57 after 6 April 2028.
Nucleus technical director Andrew Tully says: “This is much needed clarification by HMRC but it feels like the minimum possible flexibility which could be offered.
“Allowing people who have already started to take benefits to continue to do so makes sense. However, many people gradually phase benefits, and this will mean that process will have to be paused and no further benefits can be crystallised until the individual reaches age 57, creating planning issues for some people.
“While many people won’t want to access their pension until a later age, some may be tempted to crystallise all benefits before April 2028 to allow the flexibility to take income as and when they need. Hopefully HMRC will consider further flexibility as part of its forthcoming consultation.”
Tully adds that some members will retain the right to take benefits at age 55 or 56. To have this the following would need to apply:
- They had money invested in an occupational or personal pension on 3 November 2021
- The rules of that pension scheme gave an unqualified right to take the pension from an earlier age than 57
- Those rules were in place on 11 February 2021
If members meet these conditions the right to take benefits at age 55 or 56 will apply to all money paid into the scheme, including ongoing contributions.
However many scheme rules were written with a generic ‘NMPA’ definition as opposed to a specific ‘age 55’. This is likely to mean there is no right to take benefits at age 55.
Some other schemes (especially occupational ones) wouldn’t have an unqualified right – so it would depend on trustee/scheme administrator approval to take benefits at an earlier age.
Tully adds here are two ways to protect a right to take benefits at age 55 or 56 if a transfer to another scheme takes place. One is a block transfer, and the second is following an individual transfer. For both cases it is worth noting that it will to some degree depend on the receiving scheme’s position so members should check if they will support a protected age.
How people are affected
| When born | What is the impact? |
| Born on or before 6 April 1971 | No impact, as turn 57 before 6 April 2028 |
| Born after 6 April 1971 but before 6 April 1973 | Period between reaching age 55 to 5 April 2028 when rules operate as now. If the individual doesn’t take pension savings before then, may have to wait until reach age 57 (unless retain protected age) |
| Born after 5 April 1973 | Have to wait until age 57 before able to access pension savings – unless they have a protected age |