57: Increases to normal minimum pension age
The government has now published its response to its consultation on how it intends to increase normal minimum pension age (NMPA) from age 55 to age 57 with effect from 6 April 2028, together with draft provisions which will be included in the Finance Bill 2021-22 to implement the increase.
NMPA is the earliest age at which pension scheme members can take their benefits without incurring an unauthorised payments tax charge, unless they have a protected age of 50 under past tax rules or retire on ill-health grounds.
Although the final proposals are broadly as set out in the consultation, some changes have been made to the protections framework to address concerns raised by respondents. Key points to note include:
- the draft legislation allows for a NMPA below age 57 to be protected where on 5 April 2023, an individual has an unqualified right to take benefits at an age of less than 57, and this was expressly stated in the scheme rules on 11 February 2021 (the date of the consultation). A right is unqualified if the scheme rules expressly state that pension can be taken at age 55 and does not require employer or trustee consent. However, if a scheme defines NMPA by reference to the underlying legislation, this will not be an unqualified right; and
- the government’s original consultation proposed that scheme members would also keep their protected pension age if they transferred to another scheme as part of a block transfer (as currently applies to protected pension ages under age 55), but not if the transfer was an individual transfer. However, the government will now implement some easements:
- members will be able to retain their protected pension age following individual transfers; and
- a transfer will still qualify as a block transfer even where it takes effect more than 12 months after the member joined the receiving scheme.
However, these easements will not be extended to protected pension ages under age 55 and the protection will only apply to the transferred-in rights, not to all benefits in the receiving scheme, which is likely to mean that ring-fencing will be required.
There will be a carve-out for members of the police, firefighters and armed services pension schemes.
The government will provide further guidance and provisions on transitional arrangements, for example, where members do not have a protected pension age and have reached age 55 but not 57 by 6 April 2028.
A window of opportunity now exists to transfer before 6 April 2023 into a relevant scheme with an unqualified right to retire at age 55 in order to benefit from a protected pension age. The government has said that it will publish further guidance on what constitutes an unqualified right but that it is not feasible to provide sufficient detail to cover all permutations.
Schemes that are considering a bulk transfer of liabilities, including small DC schemes that are being pushed towards consolidation, will also need to consider whether the receiving scheme contains an unqualified right to retire at age 55 and how this might impact on members, especially as the 6 April 2023 deadline approaches.
There is also some concern that the changes will be a further target for scammers and while proposed new transfer regulations will allow trustees to prevent payments where there are signs of a scam, which would include an incentive to transfer such as the promise of accessing pension savings before NMPA, this may also adversely affect the ability of members to make a transfer with the purpose of obtaining a protected pension age.
Trustees and scheme managers may wish to seek advice on how NMPA is defined in their scheme rules and those schemes which are considering a bulk transfer should also consider the terms of the proposed receiving scheme in respect of NMPA and how this may affect member rights.