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The normal minimum pension age (NMPA) is the earliest age from which an individual can draw their workplace or personal pension, other than on ill-health grounds or where they have a ‘protected pension age.’ It is separate from the State Pension age, which is the earliest age an individual can draw their State Pension.

The Finance (No. 2) Bill, which is currently before Parliament, would increase it from 55 to 57 from April 2028. It would also protect members of pension schemes who before 4 November 2021 have a right to take their benefits at or before age 55. It would exempt members of the firefighters, police and armed forces public service schemes and, for protected members, reduce the restrictions on retaining a protected pension age following a transfer.

Background – Finance Act 2004

The NMPA is currently 55; between April 2006 and 2010, it was 50. When the NMPA was introduced under the Finance Act 2004 (FA 04), there were two forms of protection, with different conditions for their use:

  • Some individuals in certain professions with low retirement ages (such as sports people), who had a right before April 2006 to draw their pension before age 50, may have a protected pension age.
  • Members of occupational pension schemes on 5 April 2006 may have a protected pension age if on 5 April 2006 they had a right to take benefits before age 55.

The right needed to be unqualified, so not need the consent of a trustee or employer. Protection could be lost in certain circumstances, for example, if the individual transferred to another scheme, a where member of an occupational scheme was employed by certain bodies after taking benefits (HMRC Pension Tax Manual).

Increase to 57

Since 6 April 2015, ‘pension freedom’ reforms introduced by the Coalition government mean individuals aged 55 and over have more options regarding when and how to withdraw defined contribution pension savings, subject to their marginal rate of income tax. In response to consultation on those reforms in July 2014, the Government announced its intention to increase the NMPA “from 55, to 57 from 2028, alongside the increase in State Pension age to 67. From then on, the minimum pension age in the tax rules would remain ten years below State Pension age.” This was “in order to reflect trends in longevity and to encourage individuals to remain in work and to build sufficient savings for retirement.”

The current Government launched a consultation on proposals to implement the increase and for a protection framework in February 2021. It said that:

  • The increase to age 57 would not apply to members of the public service pension schemes for the armed forces, police and firefighters.
  • It would not apply to individuals who already had unqualified rights to take a pension at an earlier age.
  • Protected pension ages would be specific to an individual as a member of a particular scheme (so would not apply to other schemes where no existing right was held).
  • For members with a protected pension age, the protection would apply to all benefits built up under the relevant scheme, including those built up after the increase to 57 in April 2028.

 In its response to the consultation in July 2021, the Government announced that individuals would be able to keep their protected pension age if they transferred benefits to another scheme, with those benefits ring-fenced.

The Finance Bill (No. 2) Bill 2021-22 (clause 10) would increase the NMPA from age 55 to 57 from 2028. Following representations, the Government has extended the length of the window for individuals to join a protected scheme. The legislation would now protect members of registered pension schemes who before 4 November 2021 have a right to take their entitlement to benefit under those schemes at or before the existing NMPA. The Bill is due to have its Second Reading on 16 November 2021.

Comment

The ABI has expressed concern about the complexity of the new arrangements, which it said would “extend a protected pension age of 55 to millions of people with Defined Contribution pension schemes who currently have a scheme where 55 is written into the scheme rules,” making the “change to the NMPA pointless.” It was concerned that, in contrast to the State age, there would “no longer be a universal answer to the question what the normal minimum pension age is, making it harder to plan.” It was also concerned that there would be an incentive to transfer rights to a scheme with a protected pension age of 55, possibly opting out of a workplace pension, and associated employer contributions, to do so. It called for a simpler approach, like that adopted in 2010 when it was “clear that only a limited group of savers would retain the right to access their pension from 50, based on their employment.” In responses to the consultation individuals and trade unions expressed concern about the increase in the NMPA.


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