Increase to the normal minimum pension from 55 years to 57 years

The government has introduced draft legislation proposing to increase the Normal Minimum Pension Age (NMPA) from 55 years to 57 years from 6 April 2028.

This followed an initial Consultation Document issued by the Treasury to the pensions industry.

The resulting published draft legislation raised several key factors for anyone wishing to make use of the NMPA at age 55. These are summarised in this article.

At the outset, we can establish that for those born before 6 April 1971, they will be able to continue to access their pension benefits at age 55. However, for those born after 5 April 1973, the earliest date from which pension benefits may be accessed, will move by two years to age 57(with the exceptions described below).

For those born between 5 April 1971 and 5 April 1973, they may still have the prospect to draw pension benefits from their 55^th birthday prior to 6 April 2028, the date from which the new NMPA becomes effective.

The draft legislation had initially introduced a window that would have given individuals who didn’t already have the right to take benefits at 55, an opportunity to join a pension scheme by 5 April 2023 where, if the scheme rules on 11 February 2021 already establish an unqualified right to take pension benefits before age 57, this would have been upheld, allowing access to benefits from the lower age of 55.

However, the government has now undertaken a ‘U-turn’ in this respect, on 4^th November. The window has now been withdrawn and any individual transferring pension benefits with a protected pension age of 55yrs, will be subject to the receiving pension scheme ring fencing the transferred fund within a separate tranche, with the protected retirement age. Any further contributions to the scheme will now be subject to the higher minimum retirement age of 57 yrs.

Pension members participating in a pension scheme which already has a right to access benefits at age 55 written into the rules, will have this protected even after the changes in 2028, whilst they remain in the scheme.

This will include the following:

• Certain occupational schemes such as the Armed Forces, Police and Fire Service.
• A protection regime will be introduced with effect from 11 February 2021 that will establish that a pension member of a registered UK pension scheme (occupational or non-occupational including private schemes) who had an unqualified right under the existing scheme rules at the date of the consultation, to take the pension benefits at an age below 57, will be protected from the increase in April 2028 in respect of that scheme.
• Anyone with an existing protected pension age will see no change in respect of their current protection, whilst they remain within the scheme.
• Where a pension member has a protected pension age in respect of a particular pension plan, the protection will also apply to benefits accrued after 5 April 2028.
• There will be no change to the basis upon which pension members can access pensions early because of ill health.

It is important to note that where a NMPA of 55 years has not been specified within the scheme rules, it could result in the scheme automatically moving to the revised minimum retirement age of 57 years after April 2028.

The draft legislation has proposed that pension members who have a protected pension age of 55 years within their scheme, will have this age protected, where a block transfer of members to a new pension scheme takes place.

Unlike individual transfers, those individuals subject to a block transfer can continue to make contributions to their transferred pension rights subject to the protected pension age of 55 years.

Where a pension member is making an individual pension transfer to a new scheme, they will need to establish whether there is the prospect they could lose their protected pension age from the previous scheme, upon joining the new scheme.

Clearly, for pension members wishing to take advantage of the current NMPA age of 55 years, they need to speak with their existing pension providers to establish the position.

For those pension members who are thinking about transferring their pension benefits with the expectation that they may access their benefits at age 55, the appropriate checks will need to be undertaken first, and timing is critical.

As with any pension matter, it is always prudent to take professional advice to ensure that you are not restricting your future retirement options.