Government closes NMPA pension switching window

The Government has today announced that it will increase the normal minimum pension age (NMPA) from 55 to 57 in April 2028 as planned.

Related topics:  Later Life
Rozi Jones
4th November 2021
Houses house of parliament commons government govt gov
"There was a real concern people would look to transfer between now and 2023 based on access at 55 rather than wider aspects such as charges, flexibility or service."

However, it has implemented a cut off point to stop savers switching to a scheme with a protected pension age of 55.

Following the Government announcement in 2014, this measure increases the NMPA, which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge unless they are retiring due to ill-health, from age 55 to 57 in April 2028.

The Treasury had previously proposed transitional arrangements until April 2023 to ‘protect’ a small minority of individuals who have the right to take benefits at age 55.

However, this would give anyone switching schemes the right to the earlier access age which industry experts warned could "distort the market" by encouring individuals to seek out such schemes before the cut-off date.

In response, the Treasury has removed this ‘window’ by bringing forward the cut-off date to today, meaning only those already in schemes offering an unqualified right will retain the right to access that pension before age 57.

Andrew Tully, technical director at Canada Life, commented: “This is a sensible move by Government which will help reduce the risks for clients. There was a real concern people would look to transfer between now and 2023 based on access at 55 rather than wider aspects such as charges, flexibility or service. It should also reduce the ability for scammers to prey on client uncertainty.

“Despite this the overall move to age 57 is still more complex than it needs to be. The NMPA should either be moved to 57 for all, with very limited exceptions, or the Government should retain age 55 and re-think its entire policy around minimum pension ages. We still have time to pause at this point rather than rushing forward with legislation.”

Steven Cameron, pensions director at Aegon, said: “We’re pleased that the Treasury has listened to widespread concerns over aspects of its controversial proposals around how to implement an increase in the Normal Minimum Pension Age. This is the earliest age when people can typically access their pension and with a few exceptions, will increase from 55 to 57 from April 2028.

“The Treasury had proposed transitional arrangements seeking to ‘protect’ a small minority of individuals who are in schemes whose rules by sheer accident of history give an ‘unqualified right’ to take benefits at age 55. The way the protections were previously drafted, someone joining a scheme with such protections before 6 April 2023 would have retained the right to the earlier access age. This could have distorted the market, encouraging individuals to seek out such schemes before the cut-off date even if better value alternatives were available.

“We support the Treasury removing this ‘window’ by bringing forward the cut-off date to today, 4 November. This means only those already in schemes offering an unqualified right will retain the right to access that pension before age 57.

“However, changing to a new normal minimum pension age will still create complexity for members and schemes. If a member in future transfers between schemes, they may find part of their benefits can be taken from say age 55 while other parts won’t be accessible until age 57. This will complicate communications to members as well as record keeping within schemes.”

Jon Greer, head of retirement policy at Quilter, added: “We’re delighted the Treasury has listened to industry feedback and decided to shorten the window of time during which people could join a scheme that offered a protected pension age of 55.

“Having a two-year window could well have encouraged pension savers to move away from their current scheme, including some workplace schemes, purely to get their hands on their pension at a lower age, rather than for considerations around cost or suitability.

“It could also have left pension scheme members vulnerable to pension scams as it would have ignited a ‘buy it now’ pension transfer market with heightened transfer activity that scammers would have thrived in. This is certainly a much better position than what was previously proposed.

“That said, we hope that the rules on transfers do not bake in additional complexity into the pension system where pension schemes will have to create a ring-fencing system to certain rights, albeit for a much smaller cohort. This complexity is all for a two-year increase in the pension age, which for the overwhelming majority isn’t going to make a jot of difference. And it will still add complexity to the future pension dashboard system, and ‘simpler’ pension statements.

“The government should grasp this opportunity to simplify the pension system, and a good place to start is on the rules around block transfers.”

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