"The draft legislation will create a two-tier pension system in which some people will be able to access their pension at 55 and others will have to wait until they are 57."
The Finance Bill will increase the NMPA – the age at which someone can access their pension without incurring an unauthorised payment tax charge – from 55 to 57 from 6 April 2028 and will introduce a protection regime to people in certain pensions with a protected pension age (PPA) of 55.
However, should these scheme members with a PPA want to transfer to another scheme that does not provide its members with a PPA, then their transfer will be treated differently depending on whether it is an ‘individual’ or ‘block transfer’.
Block transfers are a special type of transfer that prevents people from being penalised when they transfer with another person under the same agreement (for example as part of a bulk exercise, like a workplace pension arrangement changing provider).
Block transfers will retain a PPA on the transferred sum, plus any additional money paid into the new scheme by the member. In contrast, individuals choosing to change their pension provider will only receive the PPA on the transferred sum. Any additional payments will be subject to a minimum pension age of 57.
Should an individual transfer take place, pension providers will be required to ringfence pension benefits within the same pension pot, complicating retirement planning considerably as scheme members will have potentially two ages by which they can access various benefits within the same pot.
Quilter says the requirement to ringfence pension benefits within the same pot has the potential to jeopardise DWP’s work on simpler annual benefit statements, and could increase the complexity of information provided by schemes to pension dashboards significantly.
Quilter has written to members of the Treasury Select Committee and the Work and Pensions Select Committee, as well as to the Treasury, to urge them to table an amendment to ensure that individual transfers are treated in the same way as block transfers.
Jon Greer, head of retirement policy at Quilter, commented: “The government’s plans to increase the normal minimum pension age from 55 to 57 are messy. As things currently stand, the draft legislation will create a two-tier pension system in which some people will be able to access their pension at 55 and others will have to wait until they are 57.
“Exactly who will be able to access their pension earlier is complicated enough, but things could get even more confusing when people with a lower pension age want to transfer their pension to another scheme in the future.
“Due to the way the legislation is currently drafted, if someone with a protected pension age transfers through a block transfer then they’ll get the protection at scheme level, meaning any new money paid in the scheme will also enjoy a lower pension age. However, if someone transfers on an individual basis, then only the transferred amount will receive the protection. Anything else will only be accessible from 57.
“On the surface, this doesn’t seem like a big deal. But it could bake in decades of complexity in the pension landscape and retirement planning process. Schemes will have to ringfence rights within the same pension pot, meaning someone could well have two different pension ages for the same pension scheme, making already complex pension rules even more confusing.
“A simple amendment which has the effect of ensuring individual transfers are treated in the same way as block transfers should do the trick, and will make life much easier for both pension savers and pension schemes for years to come.”