Increase to normal minimum pension age

It has been over two years since the announcement that the normal minimum pension age (NMPA) will be increased from age 55 to age 57 with effect from 6 April 2028. We are still awaiting clarification on some of the finer points; however, a summary of the likely impacts is provided below.

What is the NMPA?

The NMPA is the earliest age at which individuals can take benefits from a UK registered pension scheme without incurring an unauthorised payments tax charge. Currently the NMPA is age 55 but it is increasing to age 57 on 6 April 2028.

However, exceptions exist for clients:

• with a protected retirement age
• who are in ill-health
• who are members of certain pension schemes (e.g. firefighters, police and armed forces public service pension schemes, professional sports people).

What is a “protected pension” age?

Individuals may qualify for a protected pension age if:

• they were a member of a pension scheme on 3 November 2021, and
• the scheme rules gave them an “unqualified right” to take pension savings earlier than age 57, and
• those rules were in place on 11 February 2021.

In addition, some individuals may qualify for a protected pension age less than 55 if:

• they were a member of an occupational pension scheme on 5 April 2006, and
• the scheme rules gave them an “unqualified right” to take benefits earlier than age 55, and
• those rules were in place on 10 December 2003.

What is an “unqualified right” to take benefits?

An unqualified right to take benefits from a pension scheme means that the scheme member can access their pension benefits without needing the consent or approval of any other party, such as the trustees or the employer. This right must be explicitly stated in the scheme’s rules and must have been in place by the specified dates.

Impact on Transact pension scheme members

In common with many other pension schemes, the scheme rules for the Transact Personal Pension and the Transact SIPP state that members can take benefits from the NMPA. This means benefits can be accessed at the earliest age allowed by law. Clients will not have a protected pension age in these schemes unless they have previously transferred in benefits with a protected retirement age. However, different rules apply to the Transact Executive Pension Plan and the Transact S32 Buy Out Bond. Policyholders will have a protected retirement age if the policy commenced before 12 February 2021.

Transfers of protected retirement ages

Generally speaking, if a client with a protected retirement age of 55 or 56 transfers as part of a block transfer (i.e. there are two or more members transferring from the same scheme to the same receiving scheme, at the same time), all of the benefits in the receiving scheme can be taken at the protected retirement age. This includes any rights that existed in the receiving scheme prior to the transfer, along with any future contributions.

For individual transfers with a protected retirement age of 55 or 56, it will usually be possible to transfer funds and keep the protected pension age but only in relation to the benefits being transferred (these would need to be identified separately in the receiving scheme from any other benefits).

Other aspects

Clients with protected pension ages arising from benefits accrued prior to 6 April 2006 are not impacted by these changes. For their protection to apply, it is necessary to crystallise all the benefits in the scheme at the same time (the protected pension age is lost if partial/phased crystallisations are taken).

Areas of uncertainty

It’s not yet clear how the rules will impact clients who were born between 6 April 1971 and 5 April 1973. They will have an opportunity to crystallise benefits whilst the NMPA is 55 but will also be under age 57 when the increase applies. It seems likely that previously crystallised funds will remain unaffected, but they may need to wait until age 57 if they wish to crystallise more benefits. We expect further clarification on this point in the future.

Ill-health

The rules for clients in ill-health remain unaffected. To claim benefits, they must provide the scheme administrator with evidence from a registered medical practitioner confirming that they are, and will continue to be, medically incapable (either physically or mentally) of continuing their current occupation as a result of injury, sickness, disease or disability. They must also cease to carry on that occupation.

Clients whose life expectancy is less than one year can request a serious ill-health lump sum. This is usually tax free up to the remaining lump sum and death benefit allowance and requires medical evidence confirming the life expectancy to support the claim.

If you have any questions, please feel free to contact the Technical Services team.

All information is based on our understanding and interpretation of applicable law and regulation.

 

 

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