The Government has confirmed that the Normal Minimum Pension Age (NMPA) will increase to age 57 on 6th April 2028.
While the Government recognises that people should have freedom and choice in how they use their money, mechanisms still need to be in place to ensure savings are used for their intended purpose. This was the driving force behind the introduction of the NMPA.
The latest consultation by the Government has confirmed that the NMPA will rise to age 57 on 6th April 2028 and sets out its proposals for how a ‘protection regime’ will operate.
Protection regime
A protection regime will be in place for all types of registered pension schemes. Therefore, if anyone has an ‘unqualified right’ under a scheme’s rules at 11th February 2021 to take their benefits before the age of 57, they will be protected from the increase.
An ‘unqualified right’ means the right to take benefits without needing consent from a third party, such as the employer or trustees.
Where no such right exists, the NMPA of 57 will apply from 2028.
This protection will apply to all benefits in the scheme, even those built up after 6th April 2028, and there will be no requirement to apply to HMRC for a protected pension age.
Previous protected pension ages
The new protection regime offers more flexibility than the existing one that protects a NMPA below 55.
This is because the conditions that must be fulfilled to take benefits before 55, which means that people must retire from employment and for all benefits to crystallise at the same time (no partial retirement), will not be carried across.
It’s important to note that people who already have an existing protected pension age will see no change to the conditions they must meet.
Exceptions
Where members of the armed forces, police and fire services don’t already have a protected pension age, the Government proposes not to apply the increase in the NMPA to them.
Transfers
If members decide to transfer their benefits to another pension arrangement on an individual basis, they will lose their protection.
However, if benefits are transferred as part of a block transfer (i.e. when two or more people transfer from the same scheme to the same new scheme at the same time), protection will be maintained.
We await further guidance on this, as it isn’t clear from the consultation on the consequences when a member already has savings in the receiving scheme. This will often be the case when a member is trying to consolidate their pension savings.
Capita comment
Clear communications to members will be vital to ensure the change is fully understood, especially when they are considering a transfer. Employers and sponsors will need to carefully consider the implications of the increase while providing a clear message to members on how this may affect them. There is an obvious risk that people could transfer and unknowingly lose their right to access benefits from the age of 55. An unintended consequence may be that transfers to make use of flexibilities in another scheme or to consolidate pension savings become frustrated. Therefore, we welcome further guidance on the matter.
Schemes should be taking steps now to focus on how the changes will be delivered through pension scheme design and member engagement.
We’ve published a Spotlight that looks at the consultation in further detail. Please speak to your usual Capita contact if you would like a copy.