With people tending to live longer and spending a larger proportion of their life in retirement than in the past, it’s no surprise that there are increases planned to both the State Pension age and the minimum pension age for private pensions in the coming years. It’s worth knowing what these changes are, to help with such things as pension scheme administration and communications, retirement planning and the ongoing review of income requirements during retirement. This article looks at the change to the minimum pension age for private pensions. A separate article looks at the State Pension age changes.
Minimum pension age for private pensions
This can be read in conjunction with the flowchart titled ‘Change to NMPA from age 55 to 57 from 6 April 2028 and protected pension ages (PPA).’
The normal minimum pension age (NMPA) for taking benefits from a private pension was set at 50 when it was first introduced on 6 April 2006. The current NMPA is age 55, having been increased to that age on 6 April 2010. A further increase in the NMPA to 57 is due in 2028.
- The NMPA will increase to 57 on 6 April 2028.
- The increase to age 57 will not apply to members of the various firefighters, police and armed forces public service pension schemes (commonly referred to as uniformed services pension schemes).
- There will be a new protection regime allowing those who meet the rules to take benefits before age 57, but not earlier than age 55, after 5 April 2028 where the conditions for a protected pension age (PPA) are met. This PPA regime will apply to all types of UK registered pension scheme (occupational and non-occupational).
- The new PPA rules are different from the PPA rules that are in existence currently. For the rest of this article, we’ll refer to the new PPA rules as the ‘55 to 57 PPA’ and the current PPA rules as the ‘before 55 PPA’.
- There will be no need for individuals or schemes to apply to HM Revenue & Customs to benefit from the 55 to 57 PPA option.
- Care will need to be taken when individuals are looking at moving jobs, changing pension schemes, making a transfer or taking benefits to understand the impact this could have on the NMPA that will apply.
- Schemes will be given the right to choose how to implement the increase in NMPA to 57 as long as it is achieved by 6 April 2028. They may implement the change before then if they want to do so, providing they notify members of the increase in NMPA when it is practical to do so and consider the relevant disclosure of information requirements.
- From 2028 onwards, the government’s intention is that the NMPA for private pensions should be ten years below State Pension age, although they are not automatically linking NMPA increases to State Pension age increases at this time.
How will the protection regime work in practice?
Someone could have an entitlement to a 55 to 57 PPA under the new rules where:
- They joined a registered pension scheme before 4 November 2021 that had an ‘unqualified right’ in the scheme rules at 11 February 2021 to take benefits at an age below 57 (eg, at 55 or 56). This is known as the ‘entitlement condition’. The term unqualified right is explained in the next section below. If this right applies, such a person will be able to take benefits at that younger age even after 5 April 2028 and the PPA will apply to all money paid into the scheme, including contributions and transfers in. 11 February 2021 was the date HM Treasury's initial consultation document was published, and 4 November 2021 was the date the Finance Bill 2021/22 was published.
- They completed a valid transfer application before 4 November 2021 to a pension scheme that contains wording in the scheme rules to an unqualified right, but the transfer was not completed until on or after that date. This is to cover ‘pipeline’ transfer cases that were requested before the updated legislation in the Finance Bill 2021/22 was published but were not completed before then.
- They make a block transfer from a scheme where a 55 to 57 PPA is held into a different scheme, which they may be joining as a new member or to add to an existing plan they already hold (that may or may not have a 55 to 57 PPA). A block transfer is where at least two members transfer all their rights from the same transferring scheme to the same receiving scheme at the same time. The 55 to 57 PPA would be retained on transfer and would also apply to any existing and future rights in the receiving scheme. This is known as the ‘block transfer condition’. The block transfer rules are slightly different to those that exist for a before 55 PPA - the differences are covered further on in the article.
- They make a transfer on or after 4 November 2021 from a scheme where they hold a 55 to 57 PPA but the transfer being made does not meet the block transfer conditions. For ease of reference, we’ll refer to these as ‘individual transfers’ although this is not a term used in the legislation. In this instance, the 55 to 57 PPA only applies to the amount transferred, not to any existing or future rights – in effect, the transfer would need to be ring-fenced in the receiving scheme. The only exception to this is if the member already has a plan in the receiving scheme that has a 55 to 57 PPA that applies to all existing and future benefits – in this situation, the 55 to 57 PPA would apply to all rights in the receiving scheme.
Note – our understanding is that other than in exceptional circumstances involving previous block transfers, an individual transfer made before 4 November 2021 from a scheme where an unqualified right was held into a scheme where an unqualified right didn't apply would not carry over a 55 to 57 PPA.
As the transfer provisions are complex and the conditions for block and individual transfers are different, this is covered in more detail in the ‘Transfers’ section below.
Definition of ‘unqualified right’
An unqualified right is one that doesn't require the consent of anyone else, such as a member's employer or the scheme trustees, to take benefits before age 57. The Pensions Tax Manual has a section on the 55 to 57 PPA rules, including a link to the definition of unqualified right. The government provided two examples:
- Where scheme rules expressly state that benefits can be drawn from age 55, the government considers that this would amount to an unqualified right.
- Where scheme rules refer to the NMPA or its underlying legislation (for example, permitting benefits to be taken from the lowest age consistent with the Finance Act 2004 regime) this would not amount to an unqualified right.
Interpretation of the term unqualified right is therefore key to determining whether a 55 to 57 PPA will be available in a particular scheme and there remains some uncertainty here.
Transfers on or after 4 November 2021
In some circumstances, it will be possible for someone to protect a 55 to 57 PPA in their current scheme on transfer to a new scheme.
For block transfers, at least two members must be transferring all their rights from the same transferring scheme to the same receiving scheme at the same time for the 55 to 57 PPA to be retained. So, a partial transfer would not qualify as a block transfer. Unlike the before 55 PPA rules, there is no condition that the person transferring cannot have been a member of the receiving scheme for more than 12 months for the protection to apply. In the receiving scheme, the 55 to 57 PPA would also apply to any existing and future rights in that scheme, not just to the transferred rights.
For individual transfers (or bulk transfers where the block transfer conditions are not met), it will be possible to transfer funds from one scheme to another and for a 55 to 57 PPA to be carried across on transfer. Unlike the block transfer option, it’s not necessary that all the funds in the transferring scheme are transferred out. So, it could be possible for a partial transfer to be made from the transferring scheme, with the 55 to 57 PPA able to apply to the remaining funds in the transferring scheme and to the funds transferred to the receiving scheme. In the receiving scheme, the 55 to 57 PPA will apply only to the benefits transferred. The protection will not apply to existing and future rights held in the receiving scheme unless the scheme already benefits from a 55 to 57 PPA. This means that the receiving scheme may have to ring-fence the transferred benefits so that they are separately identifiable from other rights to which the protection does not apply.
As stated previously, this means there are differences in the treatment of block and individual transfers. Subsequent block or individual transfers are possible providing the relevant conditions are met for each transfer.
Schemes that intend to accept transfers where a 55 to 57 PPA is held will need to have processes in place to identify, track and record them, particularly if there is a need to segregate funds that will be available from different ages. This will invariably add more complexity to transfer and administration processes.
Difference between the two protections
Anyone with a before 55 PPA must take all their benefits under the pension scheme at the same time otherwise the protection will be lost. This will not apply to the protection being put in place for the increase to the NMPA to 57. So, if someone has a 55 to 57 PPA they can take benefits in stages without losing the PPA. It's also worth noting the following:
- Anyone with a before 55 PPA will see no change in respect of their current protection.
- If someone ends up with rights in a scheme that could be subject to more than one PPA (for example, they could have a before 55 PPA and a 55 to 57 PPA), then the earlier age will apply.
What if no PPA is held?
Where a before 55 PPA or a 55 to 57 PPA doesn’t apply, an individual will have an NMPA of 55 up to and including 5 April 2028. The NMPA will then change to age 57 from 6 April 2028. There will be a number of people directly affected by this increase. For example:
- Those born before 7 April 1971 will be 57 by 6 April 2028 so would not be affected by this change irrespective of whether they had taken all, part or none of their benefits by then.
- Those born between 7 April 1971 and 5 April 1973 could be affected if they have not taken all their benefits before 6 April 2028. In a worst-case scenario, someone born on 5 April 1973 would be 55 on 5 April 2028. If they still had benefits to take at 6 April 2028, they would need to wait until they reached age 57 on 5 April 2030 before they would be able to do so. It’s important to note that this could impact people who choose to take their benefits in stages using a phasing option or who choose to use a drip-feed drawdown facility.
- Those born on or after 6 April 1973 will have a minimum pension age of 57 so will not be able to take any benefits until they reach that age.
The government have said that they will provide further guidance on proposed transitional arrangements aimed at those who, for example, do not have a 55 to 57 PPA and have reached age 55 but not age 57 by 6 April 2028 and have started but not completed the process of taking their benefits.