In recent weeks and months these pages, and others like them, have been filled with content and discussion on the abolition of the lifetime allowance… rightly so, as it was big news. With that topic now well covered, let’s change focus and tackle a future change that has already been finalised and legislated for.
In this article, I’ll recap the increase to the normal minimum pension age (NMPA) and what needs to be considered for those clients who are members of a scheme that offers earlier access under HMRC rules.
For those who intend to keep their arrangements as they are in the medium to long term, nothing needs to be done. It’s business as usual for them. However, in real life there are often valid reasons to make a withdrawal or maybe even consider a new home for pension assets and it’s this group that I consider here.
The age at which we can first access our private pensions is increasing from 55 to 57 from 6 April 2028; unless you’re a member of a uniformed service pension scheme. Your clients will no doubt have been made aware by now but take every opportunity to remind them. Pensions are often lower down the personal financial pile so it’s a change that needs regular prompting.
I anticipate the vast majority will be a member of a scheme that doesn’t offer an ‘unqualified right’ to take benefits from an earlier age. Clients born between 6 April 1971 and 5 April 1973 will reach 55 and become eligible for benefits in the usual way but will be restricted from crystallising further funds from 6 April 2028 until they reach 57.
Example
Jack was born on 1 June 1972. He turns 55 on 1 June 2027 and can therefore crystallise a pension between this date and 5 April 2028. On 6 April 2028 the NMPA will increase to 57 and Jack won’t be able to take further withdrawals until 1 June 2029.
Caution and careful planning around your client’s income needs during any time of restricted access is required in the absence of clarification on the matter from HMRC. Ideally, the legislation would have accommodated this wrinkle, but it’s there and you and your clients ought to be aware of this potential trap.
Pension transfers
Those that retain a right to access at age 55 or 56 (because their scheme rules granted this prior to 11 February 2021 and it meets all the requirements at PTM062210 - Member benefits: pensions: protected pension age: occupational and public service schemes - right to take benefits before age 55, either because they held membership of a scheme or had instructed a transfer to such a scheme before 4 November 2021, or because they held pre A-Day rights that didn’t require trustee or employer consent, will have more flexibility within which to move or withdraw.
One question we receive concerns the various frameworks and how transfers from a scheme operating to the NMPA will work, or occasionally between schemes where both are protected under one of the frameworks.
The earlier framework, dating back to the increase in NMPA from 50 to 55 in 2010, stipulates that to avoid losing their entitlement, clients must buddy up with at least one other and transfer in full in a single transaction, to a scheme they haven’t held membership of for more than a year. This can be straightforward when the ceding scheme is large but less so when smaller with relatively few members.
The 2028 rules offer that solution again but have added an option for individual transfer. Essentially, it’s very similar to a standard pension transfer with the additional requirement that a member’s rights at an arrangement level are kept intact, for example where a DB fund is held with AVCs under the same scheme – here the AVCs must be kept together when looking for a new home.
The answer to the question what happens if you transfer into a scheme with a protected age before April 28, if you were wondering, is subject to debate. Some within the industry believe that transferring rights from a scheme subject to the NMPA that will be accessible from 57 after 6 April 2028, to one with a lower protected pension age, will result in the receiving scheme’s protected age being adopted in full, provided of course the criteria around membership before 4 November 2021 are met.
My understanding is that transfers between schemes with protected pension ages of 35 and 50 (for those with one of the prescribed occupations in legislation) work on the same basis.
To transfer or not to transfer? Whatever the correct course of action for your clients, it’s worth being aware of the rules in the lead up to the increase in the NMPA from 6 April 2028.
