78: Finance Act increasing normal minimum pension age receives Royal Assent
The Finance Act 2022, which received Royal Assent on 24 February 2022, implements three key pensions-related measures. There have been no significant changes to these provisions since the draft Bill was published in November 2021.
1. Increase in normal minimum pension age (NMPA)
NMPA is the earliest age at which most individuals can take their pension benefits, other than on ill-health grounds or where they have a protected pension age. With effect from 6 April 2028, NMPA will increase from 55 to 57, coinciding with the increase in state pension age to 67.
Some members will be protected from the 2028 increase by a new framework which will enable them to take benefits before age 57 if, the scheme included, as at 11 February 2021, an unqualified right to take benefits before age 57. ‘Unqualified’ means that no consent is required from the trustees or employer, even if consent is required but in practice has always been given.
Members of the police, firefighters and armed forces pension schemes are exempt from the NMPA increase. There will also be no change for those with an existing protected pension age of 55 or below.
The protected pension age will be lost on transfer unless the block transfer is to another scheme that contained an unqualified right to take benefits before age 57 in their rules at 11 February 2021.
Even though the NMPA increase will not take effect until 6 April 2028, trustees should be preparing now by taking advice on whether there is an unqualified right to take benefits before age 57, particularly as difficulties may arise if drafting is unclear or transitional issues arise.
For those schemes which do have an unqualified right, trustees and their administrators should be deciding how to communicate the implications to members, including the circumstances in which it may be lost on transfer. The issue may also be another hook for pension transfer scams.
2. Changes to the Scheme Pays facility
The Scheme Pays facility allows members who incur an annual allowance charge of £2,000 or more to ask that the scheme pays all or part of the charge to HMRC in return for an appropriate actuarial reduction in their pension benefits.
From 6 April 2022, the notice, reporting and payment deadlines for mandatory Scheme Pays will be extended, with retrospective effect from 6 April 2016. The purpose is to allow members who are retrospectively notified of a tax charge in excess of £2,000 to take advantage of scheme pays. This change was primarily aimed at facilitating the measures needed to deal with the age discrimination implications of the McCloud case for public service pension schemes. However, it also applies to other schemes
The current notification deadline for members to ask their scheme to pay is fixed at 31 July in the year after the tax year to which the annual allowance charge relates. Where members are informed of a change to their pension input amount after 2 May in a given year, under the Finance Act 2022 they will now be able to submit notice by the earlier of three months from the date they were given that information, and six years from the end of the relevant tax year.
Trustees should be checking whether updates are needed to scheme pays policies to reflect these changes. Administrators should note the deadline for submitting the account for tax return purposes has also moved in response and must now be submitted by the later of 31 December in the year after the tax year to which the annual allowance charge relates and the end of the 3 monthly period (31 March, 30 June, 30 September or 31 December) following receipt of the notice of a charge.
3. Changes to address tax issues arising from rectification of unlawful discrimination in public sector schemes
The Finance Act 2022 will also allow the Government to implement regulations to address other tax issues in public sector schemes caused by rectifying unlawful discrimination following the McCloud case. The purpose of this is to put members in no worse position than would have applied if there had been no discrimination. Draft regulations which will implement the remedy for unlawful discrimination are to be published at a later date.