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Thoughts on the New Minimum Pension Age consultation

Author Image Mark Devlin Technical Manager
7 minutes read
Last updated on 8th Mar 2021

On 11 February 2021 the government launched a consultation on raising the normal minimum pension age (NMPA) to 57. For those of us with long memories in the pensions world this is nothing new, in fact the coalition government (remember that) announced back in 2014 that it would be appropriate that the NMPA retains its ten-year gap to the state pension age. It was even consulted on then as part of a pension freedoms consultation. 

The government had announced they were making the change to 57 from 2028 but no legislation followed. The consultation follows on from the government’s announcement last year that they were in fact going to legislate to make the change.

From April 2028 the normal minimum pension age will move to 57 for those that are not protected which is the main considerations in the paper.

The government’s position remains that it is, in principle, appropriate for the NMPA to remain around 10 years under state pension age, although the government does not intend to link NMPA rises automatically to state pension age increases at this time. 

All of this has happened before, is it just the same?

Yes and no. 

As part of pension simplification, the consultation was originally December 2003 and the rules applied from 6 April 2006, it was announced that from 2010 the pension age was increasing to 55.

People with retirement ages below 55 as at 5 April 2006 were afforded protection:

  • for occupational schemes, you had to have an unqualified right to take benefits before the age of 55 under the scheme rules as at 10 December 2013
  • for non-occupational schemes, you had to have a protected occupation such as a football player, trapeze artist or deep-sea diver.

The protection was automatic and there was no need to apply.

What this meant was that for those without a special occupation i.e. the majority, their pension age was changing to 55 from 2010 (7 years form the initial consultation).

In order to take your benefits at the earlier age you had to take all your benefits in the scheme at the same time – phasing was not allowed. In occupational schemes you also had to actually retire.

If you transferred to another scheme, then to maintain your protected status you had to block transfer. Broadly, this meant you and another scheme member had to do full transfers to the same receiving scheme.

The final point is all benefits in the scheme can be taken at the earlier age even those benefits accrued after the change date. This remains unchanged as it would have been unnecessarily complex to have two different benefit ages for the benefits in the same scheme. 

There is no intention to change the existing regime.

What’s different this time?

The new regime, the “2028 protections”, has some key differences to the earlier protections.

Firstly, the rules are not so tight. Everyone, whether in an occupational or non-occupational scheme, with an unqualified right as at the date of the consultation 11 Feb 2021 (coincidentally around 7 years notice again) gets protection.

This will be decided on a scheme by scheme basis depending on each individual set of rules. For example, some scheme rules will say you can take benefits from normal minimum pension age, so there would be no right there. Conversely, if they say at any age from 55 then that has given a right to benefits before 57. 

The next hurdle is whether that right is unqualified or not. Broadly, this means no other conditions have to be met i.e. the employer or scheme administrator agreeing. For example, you can take benefits at any age from age 55 is unqualified. You can take any benefits from age 55 with your employers’ consent is qualified. 

Secondly, the government are not proposing to apply the increased NMPA to members of the armed forces, police and fire services who do not currently have a protected age.

Thirdly, in recognition of the pension freedoms of 2015 and the way modern retirement works, the proposal is not to have the rule that to be entitled to take benefits earlier you must take all your benefits in the scheme at the same time. Instead the phasing of benefits will be permitted.

So, who will be impacted?

In simple terms, those born on or before 6 April 1971 have no issue. They will already be 57 when the change happens. Then, regardless of age, those with an unqualified right in their scheme to take benefits before 57 are impacted, for example an 18-year-old could be in such a scheme right now.

The table shows those who are and are not affected, as well as those that can access their benefits at some point from age 55, but due to the change may be stopped from taking further benefits when 6 April 2028 arrives. 

Unqualified Right to benefits at 55
Born on or before 06/04/71 No impact as 57 already in 2028
Born after 06/04/71 Protection lost if a non-block transfer is made.
No Unqualified right to benefits at age 55
Born before 06/04/71 No impact as 57 already in 2028
Born on/after 06/04/71 and up to 05/04/1973

Will be 55 prior to 2028

Can vest some/all of benefits

Born on or after 06/04/73

Full impact.

No access before 57

The key impact at present are those transferring out from 11 Feb 2021. As they will not have had an unqualified right in the receiving scheme at the relevant date, they will have no unqualified right to benefits at age 55 so will be impacted as per the above table dependent on their age.

So, thoughts ...

It is no surprise. It was expected and trailed and just like the last change, there’s roughly seven years notice. 

Financial planning for retirement will not fundamentally change, if you want to retire at 55 the same way as if you wanted to retire at 53 now you need to use a savings vehicle that allows access at any time.

If you are in the transitional group above the “good” news is there’s only a two-year gap so you would only need to withdraw two years’ worth of benefit instead of five if you were looking to phase your retirement.

The immediate action is to ensure that the potential for this loss of protected age is considered on any transfer advice, including that which might be in flight but not yet completed.

Allowing the 2028 protected to phase is a good idea and the reasoning behind allowing this is sound, it allows people to access the benefits at the level and time to suit their circumstances. It does, however, create a layer of complexity where you could have the two different protected age regimes in one scheme. The government could simplify matters and deliver better outcomes for more people by allowing the flexibility of phasing to all with a protected age.

The block transfer rule is intended to remain as is. It’s unpopular currently as it as seen as a barrier preventing some people moving to pensions better suited to their needs. Perhaps at this point we should see the removal of the requirement to have a “buddy” transfer with you (which was allowed in the pension freedoms transition period). This would deliver good customer outcomes in so far as they can unilaterally transfer to a more suitable arrangement and maintain their protections.

If the block rules changed with effect from the consultation date, then this would also ease the potential issue of people transferring in this period without understanding that they were losing their right to retire at age 55.

The government encourage responses so if you have strong feelings you should respond too. You don’t need to answer all the questions, just the ones you feel strongly about!

We now need to make our consultation responses and wait the draft regulations. Allowing all protected ages to phase benefits and removing the “buddy” from the block transfer rules would be a welcome simplification and good for customer outcomes.

 All in all, keep calm and carry on planning!

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