Techzone

From April 2028, some of your clients will see the age at which they can take their pension benefits rise from age 55 to age 57 overnight. It's intended that there will be some protection to allow benefits to continue be taken from age 55. But this may not be as widely available as you might expect and may be lost if the pension is transferred so understanding the rules is vital.

Who and when?

The normal minimum pension age will increase to age 57 on 6 April 2028. This increase to the normal minimum pension age (NMPA) has been in the pipeline since 2014. There will be no phasing of its introduction. This means:

• Clients born before 6 April 1971 will continue to be able to access their pension at age 55
• Clients born after 5 April 1973 will have the earliest date they can access their pension benefits delayed by two years
• Clients born between 5 April 1971 and 5 April 1973 will have a window from their 55th birthday to 6 April 2028 to take benefits before the minimum pension age increases to 57. If they don't access their pension during this time, they will need to wait until their 57th birthday.

A recent consultation has now confirmed this policy intention and outlined the availability of protection from the increase in pension age for members of certain schemes. The closing date for comments on the consultation is 22 April 2021, so it's possible we could yet see some minor amendments before it's enacted.

Protected pension ages

Clients with existing protected pension ages, such as pre A-Day occupation related early retirement ages and those who retained an early pension age in 2010 when the minimum pension age changed from 50 to 55, will not be affected by this latest increase.

The consultation intends that there will be further protection available for those individuals in schemes which at the date of the consultation (11 February 2021) gave them a right to take benefits at age 55.

However, this appears to be causing some confusion with many believing that because they currently can access benefits at age 55, this gives them a protected pension age.

Ultimately the scheme rules will determine whether protection is available. Most personal pension based schemes simply define the earliest retirement age as the normal minimum pension age. So as this increases, it's expected that the date at which members can access their benefits will also increase and there will be no protected pension age. This was the case when minimum pension age moved from 50 to 55.

Only where the member of the pension scheme has "an unqualified right" to take benefits at an age before 57 will a protected pension age be possible. This isn't simply the ability to take benefits at age 55, but rather that the member doesn't need the consent of the trustees, scheme administrator or employer to take benefits at this age. This is more likely to apply to certain occupational schemes rather than for personal pensions.

Transfers

Transferring out of a scheme which has a protected pension age will result in the loss of the right to take benefits from age 55. However, it's intended that block transfers - i.e. where two or more members of a pension scheme transfer into the same receiving scheme at the same time - will continue to retain their protected pension age.

Pensions in payment

One possible oversight in the consultation proposals is that there's no mention of protection for transfers of pensions already in payment. Hopefully, this will be addressed during the consultation process and anyone who has gone into drawdown at age 55 and subsequently transfers to a new drawdown provider will not have to wait until 57 to continue drawing benefits.

No need to retire or crystallise all benefits

A current condition of taking benefits with a protected pension age is that the member must crystallise all the benefits under the scheme at the same time. However, it's proposed that this requirement won't apply to this new protection. Members should therefore be able to access benefits flexibly without losing their protected pension age.

Additionally, there will be no requirement to stop working for the sponsoring employer of the occupational scheme in order to protect a client's pension age in that scheme from the 2028 increase.

So what does this mean for advice in the meantime?

Protected pension ages are likely to be the exception rather than the norm, so the majority of your clients may simply see the earliest age at which can take benefits increase to age 57 on 6 April 2028.

The starting point for these clients is to determine whether they have a protected pension age under their existing arrangement. Remember this must be an 'unqualified right' to take benefits at 55 and not just a current option to take them at this age. So check the scheme rules if this is unclear or check with the provider.

If clients have a protected pension age they could lose the ability to take benefits at 55 if they transfer to a new provider, unless it is part of a block transfer. Under the consultation proposals this applies immediately and not from the date when the minimum pension ages changes become law.

Therefore, care is needed for current and future transfers where the transferring scheme has confirmed that the client does indeed have a protected pension age and the client wishes to retain the ability to take their benefits from age 55. If the scheme confirms there's no protected pension age or clients have no intention of retiring before 57, then transferring will have no impact on their retirement plans.

Clients who have ambitions to retire at 55 but don't have a protected pension age may need to rely on other assets or income sources to bridge the gap until they reach 57. If clients cease working at 55 and see their income fall, it can offer a window to access other savings tax efficiently. It could mean they can extract chargeable gains from investment bonds with little or no further tax to pay and capital gains on unit trusts/OEICs could be realised at basic rather than higher rates.

Summary

Of course it's worth remembering we're still at the consultation stage. An increase to the minimum pension age has been on the cards for a long time and is likely to happen. But there could still be changes to the suggested implementation and protections once the consultation has concluded and we get to see the draft legislation.

In the meantime, it's about setting expectations on when clients may be able to access their pension.