"If the government is certain it wants to proceed down the road of increasing the NMPA, then it would arguably be better just to move everyone to 57"
The government announced in February it was to press ahead with proposals aimed at increasing the NMPA, the age at which people can access private pension savings, from 55 to 57. It was a coalition government policy in 2014 that it would be appropriate for the NMPA to be set at 10 years below state pension age.
It was argued in the latest government’s consultation that increasing the NMPA reflected increases in longevity and changing expectations of how long we will remain in work and in retirement. However, Greer believes the change has been ill-thought through, with scant evidence that the change would alter behaviour and that the government should reconsider its position.
Greer said: “We appreciate the theory behind the change to 57 and the government’s concerns around people having enough to live off in retirement. However, if you are worried about the longevity of people’s pension pots and people accessing their savings too early, you would not move the NMPA to 57.
“Looking at the data and it would appear a large number of people with sub-scale pensions simply cash in their pot at the earliest possible opportunity. According to the latest retirement income data from the FCA, 55% of pension plans accessed for the first time are withdrawn fully overall, with 75% of those withdrawals done by people aged 55-64. Giving them an extra two years of saving isn’t going to change behaviour and will do very little for their prosperity.
“The current government also made clear it sees the 10-year gap between the NMPA and state pension age as appropriate ‘in principle’, but it does not seem they are overly convinced themselves as it does not intend to link NMPA rises automatically to state pension age increases ‘at this time’.”
The recent consultation also stated that individuals with a protected pension age of 55 who wish to transfer could only retain this benefit as a result of a block transfer. Greer believes that given the number of people who may have an unqualified right to take benefits at 55 is more than the Treasury may have anticipated, and this change may pose some unintended complexity to the DWPs efforts to help consolidate small pots.
He added: “The DWP’s Small Pots Working Group has done some initial good work around the consolidation of small pension pots. However, the proposed NMPA rules effectively remove a benefit should a member wish to transfer to a more appropriate pension scheme and goes completely against the DWP’s work. This risks leaving people stranded in more expensive or inflexible pensions just to safeguard the age benefit.
“The Pensions Minister himself said ‘scheme members should benefit from an efficient, competitive and transparent workplace pensions system. This will continue to underpin our approach to consolidation of small pots and member protection, including charges being controlled effectively.’ As such, the NMPA rule change presents challenges that will need addressed.
“Given early indications suggest a significant number will qualify for a protected age of 55, perhaps the government has underestimated the number of people the change to the NMPA is going to capture, and therefore how complex retirement planning will become in future. But essentially, the rules around block transfers complicate things considerably and as such need a rethink if the government is to proceed with this change.
Greer believes there are two alternatives the government should consider in place of its current approach – either keep the NMPA at 55 or remove proposed transitional protections and move everyone to 57.
He explained: “The easiest thing to do is to keep the NMPA at 55 and given the complexities the change introduces, would be the sensible thing for the government to do. A number of schemes would breathe a sigh of relief here as it will be challenging to implement and communicate to members. It would also prevent the unnecessary further complication of pensions – an industry that already suffers at the hands of difficult to understand rules and legislation.
“If the government is certain it wants to proceed down the road of increasing the NMPA, then it would arguably be better just to move everyone to 57 and do away with any proposed transitional protections. This will make the change easier to understand and limit the unintended consequences, although thorough communication will be required for those it has the biggest direct impact on.”
