Pension ages on the up!09 March 2021
With people tending to live longer and spending a larger proportion of their life in retirement than in the past, the UK State Pension age is regularly reviewed to ensure it remains both affordable and fair. As increases are 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.
State Pension age
From 6 October 2020, the State Pension age became 66 for men and women in the UK.
A further increase to age 67 is due to take place between 2026 and 2028. This will be phased-in as detailed in the following table:
|Date of birth||Pension date reached||State Pension age|
|6 April 1960 to 5 May 1960||6 May 2026 to 5 June 2026||66 years 1 month|
|6 May 1960 to 5 June 1960||6 July 2026 to 5 August 2026||66 years 2 months|
|6 June 1960 to 5 July 1960||6 September 2026 to 5 October 2026||66 years 3 months|
|6 July 1960 to 5 August 1960||6 November 2026 to 5 December 2026||66 years 4 months|
|6 August 1960 to 5 September 1960||6 January 2027 to 5 February 2027||66 years 5 months|
|6 September 1960 to 5 October 1960||6 March 2027 to 5 April 2027||66 years 6 months|
|6 October 1960 to 5 November 1960||6 May 2027 to 5 June 2027||66 years 7 months|
|6 November 1960 to 5 December 1960||6 July 2027 to 5 August 2027||66 years 8 months|
|6 December 1960 to 5 January 1961||6 September 2027 to 5 October 2027||66 years 9 months|
|6 January 1961 to 5 February 1961||6 November 2027 to 5 December 2027||66 years 10 months|
|6 February 1961 to 5 March 1961||6 January 2028 to 5 February 2028||66 years 11 months|
|6 March 1961 to 5 April 1961||6 March 2028 to 5 April 2028||67|
|6 April 1961 to 5 April 1977||67|
The government has also stated an intention to phase in an increase to the State Pension age to 68 in a similar way. Currently, this is expected to take place between 2044 and 2046 although a review in 2017 suggested that this change should be brought forward to between 2037 and 2039. The next review, to be completed by July 2023, should confirm the timetable to be followed to increase the State Pension age to 68.
Minimum pension age for private pensions
The current minimum pension age for taking benefits from a private pension is age 55. This is expected to increase to 57 in 2028 and HM Treasury issued a consultation document on 11 February 2021 setting out how this might happen. Our understanding based on what’s contained in the consultation document is as follows:
- The change to age 57 will take effect on 6 April 2028.
- Schemes will be given the right to choose how to implement the increase in normal minimum pension age 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 normal minimum pension age when it is practical to do so and consider the relevant disclosure of information requirements.
- The government intends to introduce a protection regime that will apply to all types of UK registered pension schemes. If the current proposals are enacted, anyone with an existing pension arrangement (occupational or non-occupational) who had an ‘unqualified right’ in the scheme rules (that is, which doesn’t require the consent of anyone else such as their employer or scheme trustees) at 11 February 2021 to take benefits from that arrangement at an age below 57 will still be able to take benefits at that younger age even after 6 April 2028. If protection does apply, this right will apply irrespective of when someone chooses to take benefits (that is, before and after 6 April 2028) and will apply to all money paid into the arrangement (that is, to money paid in before and after 11 February 2021). Interpretation of this will be key to determining whether protection will be available in a particular scheme. Protection will not apply to other schemes that an individual might be a member of where there was no unqualified right at 11 February 2021.
- There will be no need for individuals or schemes to apply to HM Revenue & Customs to benefit from a protected pension age of 55.
- Anyone with a protected tax-free cash amount or a protected pension age (members who before 6 April 2006 retained a right to take their pension benefits at an age earlier than the current rules allow) must take all their benefits under the pension scheme at the same time to benefit from this protection. This will not apply to the protection being put in place for the increase to the normal minimum pension age to 57. So, if someone can take benefits from age 55 from a pension arrangement they hold, they are able to take benefits in stages without losing the right to take benefits from age 55.
- It will be possible for someone to protect the right to take benefits from age 55 on transfer if the ‘block transfer’ rules are met. If this operates in the same way as happens currently for transfers where there is protected tax-free cash or a protected pension age, then 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 right to take benefits from age 55 to be retained.
- For anyone who opens a new pension arrangement on or after 12 February 2021, a normal minimum pension age of 55 will apply to that arrangement up to and including 5 April 2028. The normal minimum pension age 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.
- There could be situations where an individual has a protected pension age of 55 in an arrangement in one scheme and holds another arrangement in another scheme where a normal minimum pension age of 57 will apply from 6 April 2028.
- Care will need to be taken when individuals are looking at moving jobs, moving pension schemes or making a transfer to understand the impact this could have on the normal minimum pension age that will apply. Good record-keeping and clear communication will be key in noting the normal minimum pension age that applies and highlighting when a protected age of 55 may be lost.
- Anyone with an existing protected pension age of below 55 will see no change in respect of their current protections.
- The increase to age 57 will not apply to members of the firefighters, police and armed forces public service pension schemes.
- From 2028 onwards, the government’s intention is that the minimum pension age for private pensions should be ten years below State Pension age, although they are not automatically linking normal minimum pension age increases to State Pension age increases at this time.
The consultation is open until 22 April 2021. Following that, the government plans to publish draft legislation in summer 2021 and aims to include legislation to increase the normal minimum pension age to 57 in the subsequent Finance Bill.
Pensions Technical Services