Minimum pension age increased.

On the 20 July 2021 the Government confirmed that the normal minimum pension age (NMPA) will increase to age 57 from 5 April 2028.  The announcement was made along with the publication of the responses to its consultation and draft legislation.  

The firefighters, police and armed forces public service pension schemes will be exempt from the increase.  

The change introduces further complexity to pensions as alongside the increase, new protections are being made available to allow some scheme members to retain their rights to the lower minimum age of 55.  Some consultation respondents, including industry bodies, argued that due to both the complexity and concerns that the pension ages could drive sub-optimal decisions to transfer, there should be no protected pension ages (PPA).  The Government, however, decided that the protections should be put in place.  Although this may perhaps create undue complexity here, it is good to see the Government are keen to protect existing rights in the event of any future more fundamental changes.  

The protection will be available where members had an unqualified right under the scheme rules as at 11 February 2021 to a NMPA below 57.  Many respondents to the consultation sought clarity on exactly what this means and some objected to schemes having to make the decision themselves.  However, the Government stated it believes it’s the scheme’s responsibility to determine this.  Minimal guidance was provided on this but the consultation response did outline two examples:  

“Where the rules expressly state that benefits can be drawn from 55, the Government considers that would amount to an unqualified right. Conversely, where the rules refer to the NMPA or its underlying legislation (e.g. permitting benefits to be taken from the lowest age consistent with the Finance Act 2004 regime) that would not confer an unqualified right to a PPA” 

The Government stated it would provide further explanation and examples of what is an unqualified right as appropriate. It seems that many schemes will be keen to see further guidance on this along with the need to seek their own legal opinions on their rules.  

As with previous protected pension ages, any protection will be lost on transfer unless it forms part of a block transfer. However, the usual requirement for members to take all their benefits at the same time will be removed for those with a protected age of 55.  

However, alongside the block transfer rules a new set of rules will be introduced allowing anyone to join or transfer benefits to a scheme with a protected pension age before 5 April 2023 and retain the PPA.  This gives a window of opportunity to allow those who currently don’t have an unqualified right to a NMPA of 55 to transfer or join a new one that does.   As before, the scheme must have had the unqualified right as at 11 February 2021 so there is nothing that schemes can do now to ensure they can offer protection, it will just be down to the interpretation of their scheme rules as at that date.  

Again, this creates further complexity and may see clients seeking to transfer to give themselves the option to benefit for the PPA.  However, it will also help some client’s who have good reasons to transfer but would be put off because they would lose their PPA available in their existing scheme.  

The consultation response also confirmed that there would be no changes to the rules allowing members to access their benefits due to ill health before the NMPA.  

Once again with pensions we have seen that even with what at first glance appears to be a minor change, it introduces a whole new set of rules and complexity for advisers to deal with and client’s to understand.