Changes to the Normal Minimum Pension age – could this affect you if changes are introduced?

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On the 20th July HM Treasury published their response to the consultation on the implementation of the increase to the Normal Minimum Pension Age (NMPA) from 55 to 57 which is proposed to take effect from 6 April 2028. This has now gone in to the latest Finance Bill and whilst it's not law just yet, it is looking likely it will ultimately now pass through Parliament.

Within the consultation, as part of the implementation, the Government had originally included draft legislation for new Protected Pension Age (PPA) rules that would allow members of schemes, up until April 2023, to either join or transfer into a scheme that could offer a PPA earlier than 57 to retain this. However, in a U-turn the Government has closed this loophole without prior notice. The reason they gave was potential poorer outcomes on switching for savers or being the victim of a scam.

Under the current law 55 is the earliest age that a person can access their pension arrangements (without incurring an unauthorised payments tax charge) unless the individual satisfies certain ill health conditions.

This means the increase in the NMPA from age 55 to 57 could impact people that are currently intending to access their pension benefits before age 57, if they are born after certain dates.

Who is affected?

• If you were born before 6 April 1971 you should be unaffected by the legislation as you will reach 55 by April 2026 and age 57 before April 2028. Therefore you should be able to access their pension savings at the current NMPA of 55.
• If you born on or after 6 April 1973 (with no existing protected retirement age) you will be unable to access their pension savings before age 57.
• For clients born after 6 April 1971, but before 6 April 1973, it is more complicated again. This is because people in this group will reach the current NMPA on their 55th birthday and will normally still have access to their benefits until 6 April 2028. However, if the pension funds are not then accessed, they would not then have access until their 57th birthday, thereby delaying it further for 2 years. This scenario is best explained by way of an example :

 

Someone born on the 1^st April 1973, can access their personal pension arrangements at age 55 (without incurring an unauthorised payments tax charge) if they wish ie. from 1^st April 2028. However, if they choose not to do so (which may of course be the right thing to do) once the 6^th April 2028 passes they would then have to wait until their 57^th birthday, 6^th April 2030, to have the option to access their benefits again.

Going forward, if your pension scheme is a HMRC registered pension scheme as at 5 April 2023, whose rules on 11 February 2021 conferred an unqualified right to access pension benefits earlier than age 57, then access to the benefits would still be available without incurring an unauthorised tax charge.

You will need to check with your pension scheme provider if it clearly states what access you are provided with and when. For example, where the rules expressly state that your benefits can be drawn from age 55, the Government considers that this would amount to an unqualified right. Conversely, where the rules refer to the NMPA or its underlying legislation, it is suggested that this would not give an unqualifying right to access benefits before age 57.

If you have multiple pension pots with different NMPA’s careful planning and consideration around your retirement is therefore required.

In summary, for clients born before 6 April 1971 there should be no impact. For those born after that date the changes mean you may need to look more closely at your existing pension arrangements to help you plan your retirement effectively.  Of course for much younger clients, whilst a protected retirement age of 55 may only provide a difference up to 2 years now, with the Government needing to continue to look at ways to continue to finance the state pension the NMPA could actually be even higher than 57 by the time this age is reached, however, time will tell as to whether that’s the case or otherwise.  

 

At Armstrong Watson we are Chartered Independent Financial Advisers. Our retirement planning expertise supports our quest to help our clients achieve prosperity, a secure future and peace of mind. This latest proposed change to pension legislation shows that with the continued complexity around this crucial area of financial planning independent financial advice is ever more important to access the right support to help make the right retirement decisions for you and your family.