Pension schemes will be free to decide how and when to move to the new Normal Minimum Pension Age (NMPA) of age 57 by 2028, meaning some may raise theirs earlier than that, a Treasury consultation proposes.
The consultation on increasing the NMPA could be interpreted as further moving of the retirement goalposts, warn pension experts, and could lead to knee-jerk moves to pull benefits before 2028, even though those with pre-existing rights will remain protected.
The normal minimum pension age will increase from 55 to 57 in 2028, in line with the increase in state pension age to 67.
The government proposes to offer a protection regime that means an individual member of any registered pension scheme who has a right under the scheme rules at the date of this consultation to take pension benefits at an age below 57 will be protected from the increase in 2028.
Individuals who do not have a protected pension age but take scheme benefits before age 57 after 5 April 2028 would be subject to unauthorised payments tax charges
The government proposes that individuals should retain their protection as part of a transfer from one scheme to another where they become a member of another pension scheme as a result of a block transfer.
The government has recognised the special position of members of the armed forces, police and fire services, and proposes not to apply the increase in the NMPA to individuals in those pension schemes.
Canada Life technical director Andrew Tully says: “A protection regime will benefit those who currently have a right to take benefits before age 57, but it is disappointing to see the Government propose a continuation of the existing ‘block transfer’ rules. These rules are complex and can prevent individuals benefitting from the pension freedoms, by taking the most suitable option for their circumstances. Removing the block transfer rules and allowing those affected to keep their entitlement to a lower pension age on transfer would be a positive move.
“This confirmation of the timing of the increase in the normal minimum pension age will be welcome to individuals and advisers and give time for appropriate planning over the next seven years.”
Hymans Robertson partner Michael Ambery says: “Many individuals and corporate sponsors will need to carefully consider the implications of proposed increase in age at which pensions savers can access their pensions without penalty to 57. In particular it will have an impact to the decisions on the timing of when they take their pension benefits. Individual pension savers could be put off by changes that on the face of things may just sound like you need to work for longer and money is locked away. In the current environment saving for retirement and what that looks like may mean this may feel unpopular. A change to the earliest point at which an individual can claim pension benefits and the payment of benefits such as State pension and other pensions becomes a juggling act where an individual will need help and support in order to determine best approach and timing of taking benefits.
“Most pension arrangements are still based on anticipated retirement at age 65. Recent experience shows less than half of individuals actually retire at the age they have targeted. This means that individuals could be invested incorrectly.
“If there are changes, as proposed in this consultation integrating retirement age and adequacy, and communicating this clearly to members, will be key to ensure that any change legislation is understood and made appropriate for the individual investor. Focus should be on how providers of pensions and corporates deliver the changes through pension scheme design and via member engagement/ wellbeing.”
Dalriada Trustees professional trustee Sarah Brough says: “There is a possibility that some employees will rush to retire before the step up kicks in. So communication with members will be important, ensuring they make informed decisions on taking benefits rather than just a knee-jerk reaction to the change in the law. As with the 2010 change, increasing normal minimum pension age from 50 to 55, trustees and members will need to pay close attention to the requirements for protected pension ages (PPAs). For those affected, failure to adhere to the PPA conditions can be costly. Employers and trustees will need to give thought to implementation of the change at a scheme level, subject to the overriding requirement that NMPA is 57 by 2028. A phased introduction may be influenced by an employer’s own philosophy on working longer and flexibly.”