Normal Minimum Pension Age changes

Since our last update, HMRC has confirmed that it intends to provide further guidance on the Normal Minimum Pension Age (NMPA) changes which are currently going through the legislative process and may be subject to further changes.

As a reminder, under the proposals, the normal minimum pension age is set to rise from 55 to 57 on 6 April 2028. Three groups of people may potentially retain a right to retire earlier than age 57:

–  Those in one of the uniformed services pension schemes (which includes firefighters, police and armed forces).

– Those with a protected early retirement age of 55 or below already.

– Those who were already in a pension scheme on 3^rd November 2021, which featured an unqualified right to retire at 55, as at the date of the initial announcement (11^th February 2021). In the draft legislation, this is known as the ‘entitlement condition’.

This last category is generating a lot of enquiries, as advisers consider whether their clients are in a ‘age 55’ scheme or an ‘age 57’ scheme.

We have received legal advice which confirms that, based on the proposals, our SIPP schemes feature the protected early retirement age of 55, but our SSAS schemes would not, as they are individually approved and have been drafted differently.

Those in an ‘age 55’ scheme will retain not only their early retirement age on the funds they have already built up, but they can also transfer additional money and make contributions, with the entire fund benefitting from the ‘age 55’ access.

Note that this is only relevant for someone who under the new rules is a member of a pension scheme with a protected retirement age. Also, as the change from age 55 to 57 applies from 6 April 2028, it is worth stating that this is not relevant to anyone born before 7 April 1971, as they will already be age 57 when the new rules take effect.

Transfers to schemes with a protected early retirement age

As has been said, the rules are drafted so that someone who meets the entitlement condition, in a scheme which has a protected early retirement age can continue to receive contributions and accept transfers, with all benefits under the scheme benefitting from the protected early retirement age.

Is it now too late to join a scheme with a protected early retirement age?

Yes, it appears the changes made in November were made to prevent a distortion of the market, which would otherwise have led to a great many people transferring to gain the benefit of a protected retirement age. However, there may be options for those who have benefits held in at least one pension scheme which has a protected early retirement age (an ‘age 55’ scheme).

Transfers from schemes with a protected early retirement age

There are two scenarios in which someone who has benefits in a scheme with a protected early retirement age might still be able to transfer to another pension and scheme and retain this entitlement:

1 – Block transfers

The draft legislation appears to allow someone with a protected early retirement age to transfer to another pension scheme on a block basis (the ‘block transfer condition’), and to retain that protected early retirement age, on the benefits transferred, plus any other benefits held in that scheme or topped up through extra contributions or transfers.

To qualify as a block transfer, all the following must apply:

– It is a transfer of the pension rights relating to the member and at least one other pension scheme member

– the transfer is made as a single transaction, from the same transferring scheme to the same receiving scheme

– the transfer represents all the pension rights under the scheme for all the members transferring as part of that single transaction

This is similar to previous rules around block transfers, although these appear to be more generous, as benefits do not have to be taken all at once, there is no requirement for the individual to have been a member of the receiving scheme for less than 12 months, and there is no restriction on re-employment after taking benefits.

2 – Any transfer which is not a block transfer e.g. individual transfers

For someone who cannot meet the block transfer requirements, they will still have the option of transferring with the benefit of the protected early retirement age, but only on the transferred element which would effectively be ringfenced under the receiving scheme, so that any other money added does not qualify for the protected early retirement age. This is likely to cause headaches for pension scheme administrators, which will need to hold more than one set of benefits with different retirement ages etc., unless the receiving scheme also featured a protected early retirement age.

Note

There is a lot of complexity around these changes which generate a number of questions, such as the rules and requirements for substantive transfers which started before 4^th November 2021, for which we must await the final legislation and guidance.

For many individuals, an early retirement age will either not be relevant (due to when they were born), or practical in terms of the value of their pension savings to make it worthwhile to retire early. For anyone in ill health, legislation already allows the option of retiring at any age, subject to meeting certain criteria.

This information is based on our understanding of the proposed legislation which is subject to change.

January 31st, 2022