This item is for investment professionals only and should not be relied upon by private investors. A brief examination of the recently published consultation paper on increasing the normal minimum pension age

Paul Kennedy Head of Tax Planning, FundsNetwork

The Government has recently reaffirmed its intention to increase the normal minimum Before I go further, it is extremely important to state that these matters are simply at pension age (NMPA) from age 55 to age 57 from 6 April 2028. The NMPA is the age at the consultation stage and no draft legislation has been published. Some of the finer which a pension scheme member may take their benefits within the standard retirement concepts are likely to prompt questions upon which further discussion and clarification framework. If a member takes benefits before then, these benefits are treated as will be required. This document is a brief summary of some salient points within the an unauthorised payment unless the member satisfies the ill-health condition or they consultation together with a few observations. have a protected pension age. Details can be found in the Government’s consultation paper ‘Increasing the normal minimum pension age: consultation on implementation’ published on 11 February 2021. Ordinarily, the date of publication of such papers has little relevance but here that publication date, 11 February 2021 may become very relevant indeed (more later). Changes to the normal minimum pension age

Background ■ For individuals born on or after 6 but before 6 April 1973 it’s a bit more complex. They will reach age 55 before 6 April 2028 but will not be at age 57 on that In 2014 (‘Freedom and choice in pensions’ March 2014 Cm 8835) the Government date. It seems that they will have the ability to take benefits on or after hitting age 55 announced its intention to radically reform the flexibilities afforded to pension savers before 6 April 2028 but if benefits are not taken before that date then can’t then be in retirement to the regime that we see today. That announcement also included a taken until age 57. The real-life effect will be dependent upon the date of birth with proposal to raise the age at which individuals can take their private pension savings those born closest to just before 6 April 1973 seeing the more potentially dramatic under the tax rules from 55 to 57 in 2028, at the point that the State Pension age effect. For example, an individual born 31 will become eligible to take increases to 67. The new consultation paper reconfirms that previous announcement that benefits under their current NMPA from 31 March 2028. If that’s not exercised, then the NMPA will rise to 57 on 6 April 2028. from 6 April 2028 they will then not be able to take benefits for nearly another 2 years until 31 March 2030 (unless protected pension age applies). Headline details The Consultation Paper outlines the following proposed framework: Observations ■ The current NMPA will remain at age 55 until 5 April 2028 and will increase to age Reasonably straightforward where no protection exists except the latter category. 57 on 6 April 2028. This will be the default position for individuals who do not have a Let’s say an individual hits age 55 on 31 March 2028. They can take benefits protected pension age. I shall say more on the proposals concerning protection but between 31 March 2028 and 5 April 2028 and if they don’t, in theory, they move first let’s examine the client sectors that would prevail for those without a protected to NMPA of age 57. Easy to understand for a simple scheme pension coming pension age. into payment but less clear, for example on pension plans providing flexi-access ■ For individuals born before 6 April 1971; the current NMPA of age 55 applies until drawdown. Will crystallising an amount (even a small amount) of the overall 6 April 2028 whereupon it becomes age 57. However, these individuals will have uncrystallised plan into FAD pre 6 April 2028 allow the remaining uncrystallised reached age 57 by 5 April 2028 so, in essence, they face no material effective change funds to be taken from age 55 or will they be locked down until age 57. in being able to take benefits from age 55 onwards. Some benefits have clearly been taken from the scheme at age 55 but there remain more uncrystallised amounts to take and the situation concerning the ■ For individuals born after 6 April 1973; the current NMPA of age 55 applies until uncrystallised balance is not currently clear. 6 April 2028 whereupon it becomes age 57. They will not hit age 55 before 6 April 2028 and cannot therefore use the current NMPA and will move to the new NMPA of age 57 on 6 April 2028 (unless protected pension age applies). Changes to the normal minimum pension age

Protected pension age The Government proposes to offer a protection regime for the increase to the NMPA in Observations 2028 for all types of registered pension scheme. The protected pension age will apply It appears that joining a scheme anew after 11 February 2021 will not convey (and you’ll now see the importance of the date above) where: protection in respect of that scheme. Where already a member of the scheme on 11 February 2021, it appears that the nature of the scheme rules (on 11 February ■ An individual was a member of the pension scheme on 11 February 2021. 2021) will determine whether or not the required right to take pension benefits AND at an age below 57 existed on the relevant date. As stated previously, there is currently no draft legislation so it’s impossible to fully analyse the exact nature of ■ On that date, had a right under the scheme rules to take pension benefits at an age the legal right that would be required to convey protection. For the moment, we below 57. have only the outline sentences within the consultation. Absent draft legislation, means it is impossible to definitively confirm one way or another whether an What does a right to take pension benefits at an age below 57 mean? individual will or will not have the protection within their current scheme under the The consultation states this to mean ‘an unqualified right under which individuals do not current proposal. Remember, the proposal is that protection applies according need the consent of any other person (such as an employer or trustee) before they can to the position on 11 February 2021 irrespective of the members current age. In take their benefits at a particular age’ and, where that right enables pension benefits essence, it’s potentially relevant to anyone born on or after 6 April 1971. to be taken at an age below 57, they will be protected from the increase in 2028. The member’s protected pension age will be the age from which they currently have the right to take their benefits.

Where the protection applies the proposal is that it will apply to all the member’s benefits under the relevant scheme, not just those benefits built up before 2028.

The protected pension age will be specific to an individual as a member of a particular scheme. Protection will not apply to other schemes where that individual had no existing right. Thus, an individual could have a protected pension age in one scheme at an age below 57, but for schemes where no such right exists the new NMPA of 57 will apply from 2028.

Any individuals with an existing protected pension age will see no change in respect of their current protections. Additionally, the government does not propose to apply the increase in the NMPA to individuals in certain ‘public’ pension schemes (listed in the document as the armed forces, police and fire services). Changes to the normal minimum pension age

Conditions relating to the new protected pension ages on retirement and drawing benefits There are some distinct contrasts to the proposed new protected pension age regime General summary observations compared to the regime introduced in 2010 when the NMPA was increased from age 50 to age 55. First, there will be no requirement to actually retire (or meet other We don’t yet know with precision where scheme rules will and will not convey similar conditions) for ‘early’ payment of benefits. Where individuals are entitled to a protected pension age. Where such protection is afforded under the current a protected pension age in relation to the increase in NMPA from 2028, they will be scheme, the potential loss of such protection may or may not occur on transfer. able to draw benefits under their scheme even if they are still working. Secondly, if an If such protection exists but would be lost on transfer to a new pension then individual wishes to use their protected pension age under the existing regime then all it’s undoubtedly a consideration that will need to be thrown into the mix when of their benefits under the scheme must be taken (crystallised) on the same date. The considering whether to transfer. government proposes that this requirement will not be a condition of the 2028 protected pension age regime. Where the client was born before 6 April 1971 (so those around late 49/50 plus) it arguably shouldn’t matter too much. For clients born on or after 6 April 1971, if it is clear that their current pension does not provide a protected pension age Will transferring the pension cause a loss of protection? below age 57 it will not be a relevant consideration. For others born on or after The consultation states that the government proposes that individuals should retain 6 April 1971, where their current pre 11 February 2021 pension may provide a their protection as part of a transfer where they become a member of another pension protected pension age of 55, the situation is evidently more complex. For some, scheme as a result of a block transfer. Nothing further is said so, at this stage, a cautious the protected pension age could last for many years and whilst at the moment, inference is that a transfer that is not a block transfer would cause a loss of protection? it provides a difference of only 2 or less years, the NMPA could be higher than age 57 by the time they retire.

Finally, do remember that this is only a consultation upon which more clarity will Observations undoubtedly unfold in due course. The consultation is now seeking views on the The concept of a block transfer is currently defined within legislation. In very implementation of the rise in NMPA and the protections for pension scheme simple terms, a block transfer requires; a single transaction of the transfer of members. It runs until 22 April 2021 following which the Government has said all the pension rights of at least two members of a scheme to another scheme it will carefully consider all the responses it has received and will respond in where the members have not been a member of the receiving scheme for more due course. Once the responses to the consultation have been considered, the than 12 months. It remains to be seen whether the current definition will be Government says it plans to publish draft legislation in summer 2021 and to adopted for transfers relating to this new protection or whether we will see any legislate in the subsequent Finance Bill. differences. Changes to the normal minimum pension age

Important information This document provides information and is only intended to provide an overview of the For more insights and analysis relating to current law in this area and does not constitute financial advice, tax advice or legal compliance and regulation, please visit advice, or provide any recommendations. This document represents a summary of our understanding of the relevant regulations at the date of its last review (February 2021). fundsnetwork.co.uk/compliance Regulations and guidance are often subject to change and may change in future. Individuals should check that rules and regulations have not changed.

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