How could proposed changes to the minimum pension age affect you?

HM Treasury has published its response to the consultation on the proposed increase of the Normal Minimum Pension Age (NMPA) from 55 to 57.

Whilst this is still a proposal at this stage, this could have a significant impact for those affected if it is introduced on April 6 2028.

Under the current law, this is the earliest age a person can access their pension arrangements (without incurring an unauthorised payments tax charge) unless the individual satisfies certain ill-health conditions, or they have a Protected Pension Age (PPA).

This means the increase in the NMPA from age 55 to 57 could impact people that are currently intending to access their pension benefits before age 57, if they are born after certain dates.

Who would be affected?

If you were born before April 6 1971 you should be unaffected by the legislation.
If you were born on or after April 6 1973 (with no existing protected retirement age) you will be unable to access your pension savings before age 57, unless you join a pension scheme that offers a PPA before April 6 2023
For those born after April 6 1971, but before April 6 1973, it is more complicated again. This is because people in this group will reach the current NMPA on their 55th birthday and will normally still have access to their benefits until April 6 2028. However, if the pension funds are not then accessed, they would not then have access until their 57th birthday, thereby delaying it further for two years.

What could this mean?

The Government has outlined a protection regime for the increase to the NMPA in 2028 for any type of registered pension scheme if certain conditions are met.

PPA is specific to an individual member of a particular scheme, so it would not apply to memberships of other schemes where there was no right to a PPA. Pension scheme members that will qualify for PPA are all members of the armed forces, police and fire public service pension schemes.

In addition, if your pension scheme is an HMRC registered pension scheme as of April 5 2023, whose rules on February 11 2021 conferred an unqualified right to access pension benefits earlier than age 57, then access to the benefits would still be available without incurring an unauthorised tax charge.

This, therefore, provides individuals without a PPA, the opportunity to join a scheme that offers access at age 55 before April 5 2023.

You will need to check with your pension scheme provider if it clearly states what access you are provided with and when.

For example, where the rules expressly state that your benefits can be drawn from age 55, the Government considers that this would amount to an unqualified right.

Conversely, where the rules refer to the NMPA or its underlying legislation, it is suggested that this would not give an unqualifying right to access benefits before age 57.

Careful planning and consideration is therefore required.

In summary, for those born before April 6 1971 there should be no impact.

For those born after that date, the changes mean you may need to look more closely at your existing pension arrangements to help you plan your retirement effectively.

Of course for much younger clients, whilst a protected retirement age of 55 may only provide a difference up to two years now, with the Government needing to continue to look at ways to continue to finance the state pension the NMPA could be even higher than 57 by the time this age is reached, however, time will tell.

At Armstrong Watson, we have Chartered Independent Financial Advisers.

Our retirement planning expertise supports our quest to help our clients achieve prosperity, a secure future and peace of mind. 

This latest change to pension legislation shows the continued complexity around this crucial area of financial planning which means that independent financial advice is ever more important to get the right support to help make the right retirement decisions for you and your family.