Minimum pension age to hit 57 under government plans
The normal minimum pension age (NMPA) is set to increase to 57 under plans unveiled in a government consultation today (11 February).
At present, people aged 55 can access their retirement funds but the age limit is likely to increase by two years under plans laid out by the Treasury.
The Treasury consultation said the government intended to legislate to increase the normal minimum pension age to age 57 on 6 April 2028.
It said: "Increasing the normal minimum pension age reflects increases in longevity and changing expectations of how long we will remain in work and in retirement.
"Raising the normal minimum pension age to age 57 could encourage individuals to save longer for their retirement, and so help ensure that individuals will have financial security in later life."
Members of the firefighters, police and armed forces public service pension schemes would not be affected by the change, it added.
The consultation also seeks views on the proposed protection regime for members of other pension schemes.
The minimum pension age was introduced in 2006, the Treasury said, "to ensure a balance between the generous tax relief that the government provides to enable people to save for retirement and setting the right incentives for them to accumulate sufficient pension savings and not fall back on state support in retirement".
It was increased from 50 to 55 in 2010 to encourage people to "work for longer".
Canada Life technical director Andrew Tully said: "This confirmation of the timing of the increase in the normal minimum pension age will be welcome to individuals and advisers and give time for appropriate planning over the next seven years.
"A protection regime will benefit those who currently have a right to take benefits before age 57, but it is disappointing to see the government propose a continuation of the existing ‘block transfer' rules.
"These rules are complex and can prevent individuals from benefitting from the pension freedoms, by taking the most suitable option for their circumstances. Removing the block transfer rules and allowing those affected to keep their entitlement to a lower pension age on transfer would be a positive move.
The increase to the normal minimum pension age is in line with the increase in state pension age to 67.
The consultation stated the government believes that schemes should be free to decide how and when to move to the new minimum pension age by 2028 - meaning some schemes could increase the minimum age before 2028.
The government has also set out a planned protection regime - meaning a member of any registered pension scheme who has a right under the scheme rules at the date of this consultation to take pension benefits at an age below 57 will be protected from the increase in 2028.
Canada Life explained that individuals who do not have a protected pension age but take scheme benefits before age 57 after 5 April 2028 would be subject to unauthorised payments tax charges.
It said: "The government proposes that individuals should retain their protection as part of a transfer from one scheme to another where they become a member of another pension scheme as a result of a block transfer (broadly speaking a block transfer is where two or more people transfer from the same transferring scheme to the same destination scheme at the same time)."
Hymans Robertson partner Michael Ambery said many individuals and corporate sponsors would need to carefully consider the implications of proposed increase in age at which pensions savers can access their pensions without penalty to 57.
He said: "In particular it will have an impact to the decisions on the timing of when they take their pension benefits. Individual pension savers could be put off by changes that on the face of things may just sound like you need to work for longer and money is locked away. In the current environment saving for retirement and what that looks like may mean this may feel unpopular. A change to the earliest point at which an individual can claim pension benefits and the payment of benefits such as State pension and other pensions becomes a juggling act where an individual will need help and support in order to determine best approach and timing of taking benefits."
Ambery added: "Most pension arrangements are still based on anticipated retirement at age 65. Recent experience shows less than half of individuals actually retire at the age they have targeted. This means that individuals could be invested incorrectly.
"If there are changes, as proposed in this consultation integrating retirement age and adequacy, and communicating this clearly to members, will be key to ensure that any change legislation is understood and made appropriate for the individual investor. Focus should be on how providers of pensions and corporates deliver the changes through pension scheme design and via member engagement/ wellbeing."
LCP partner Steve Webb warned the proposals risked creating ‘second class' pension schemes. He said for pension schemes which are already open today, where people can access their money from age 55, that right will remain even for money paid in after today. But for pension arrangements opened from tomorrow, the normal pension age will rise to 57 in 2028. For those in age groups affected by the change, new pension arrangement may be regarded as ‘second class' compared with pensions that were already open when the consultation was published.
Webb said the change may be of particular relevance to those currently in their late 40s or below, who want to access their pensions before 57 but who will only now be able to do so from pension schemes of which they are already a member as at today. The proposed transitional arrangements are also likely to create considerable complexity for those who run pension schemes as they will need separate rules for schemes set up after today. Also, as people change jobs, those who are automatically enrolled into a new pension tomorrow could face an access age of 57 compared with an access age of 55 for their existing pensions.
Webb commented: "While the increase in the normal minimum pension age from 55 to 57 had been widely trailed, the way in which the change will be implemented could be complex for savers and for schemes and risks creating ‘second class' pensions with tougher access rules depending on when they were opened. There will be a need for clear communication with members to make sure they understand the different rules which may apply to their different pensions. As we move towards an era of pension consolidation, members will have to be careful not to accidentally throw away protected rights to access a pension at 55."
