The government response to submissions on its consultation to raise the normal minimum pension age (NMPA) to 57, from 6 April 2028, has been published, together with draft legislation.
When the NMPA was increased from 50 to 55 in 2010, individuals who had already started to make occupational pension savings retained the right to draw benefits as authorised payments from age 50, subject to certain conditions being met. We refer to this as the existing protection regime.
A similar regime, enabling members to keep an NMPA between 55 and 57 – the new protection regime – is to be introduced for members that have pension savings in a scheme on 5 April 2023. This will apply to personal as well as occupational pensions – the protections for NMPAs lower than 55 were restricted to the latter – and, as before, will be assessed for each scheme independently.
The conditions that need to be met under the new protection regime are less onerous than under the existing regime. Two of the most significant changes were included in the consultation, namely that members will not need to cease work nor to become entitled to all benefits under the scheme on the same date to be able to draw benefits from age 55. This will enable members, for example, to draw some of their DC pot whilst deferring their DB pension without losing protection.
Individuals will retain the new protected NMPA following an individual or block transfer to a new arrangement, but in the case of individual transfers to a scheme where the member doesn’t already have a protected NMPA only the transferred rights will benefit from the protected NMPA – not subsequent accrual. A bulk transfer of, for example, all of the membership’s DC rights within a scheme while retaining DB would not qualify as a block transfer. A protected NMPA would be retained in the transferring scheme, with benefits in the receiving scheme treated as for an individual transfer.
One helpful development is that, under the new regime, a protected NMPA following a block transfer will not be conditional on having been a member of the new scheme for no longer than one year. This will make block transfers to a master trust easier by allowing an individual who was already a member because of a prior transfer from a different employment to retain their NMPA of 55. However, the one-year membership condition for transfers remains in force in relation to retention of an existing protected NMPA (lower than 55) as does the requirement that the transfer must be a block transfer. Our response to the consultation urged the government to extend the condition easements to existing, protected NMPAs but this has not been taken up. Existing (younger than age 55) NMPA protection will continue provided that the conditions explained in HMRC guidance are met.
Under the new protection regime, the scheme rules must, as at 11 February 2021 (the date the government published the original consultation) confer a right to draw benefits before age 57 and that right must be unconditional ie not dependent on the consent of anybody, such as the trustees. The response clarifies that the government’s view is that a reference to drawing rights from the NMPA would not qualify, but stresses that the position will depend on the scheme documentation.
Where such an unconditional right exists in a scheme’s rules at 11 February 2021, a member’s right to draw benefits before 57 will be maintained, applying both to existing rights and future rights that accrue under the scheme.
The government says that it will provide further guidance on the proposed transitional arrangements and provisions “in due course”, as it recognises “the importance of establishing a clear position” and cites the example of members without a protected NMPA who reach age 55, but not age 57, by 6 April 2028. We hope that it will also take the opportunity to correct what we hope are drafting errors, in particular it would appear that a protected NMPA might not be maintained following a transfer that takes place before 5 April 2023.
