Government pushes ahead with NMPA increase; complexity concerns persist

The government has confirmed plans to legislate in the Finance Bill to increase the normal minimum pension age (NMPA) from 55 to 57 from 6 April 2028, in order to reflect increases in longevity and changing expectations around working patterns.

The government argued that raising the normal minimum pension age to 57 could encourage individuals to save longer for their retirement and help ensure that individuals have financial security in later life.

Plans to increase the NMPA were first announced by the Coalition Government in 2014, and reconfirmed this year when the government launched a consultation on plans to increase the age at which people can access their pension without a tax penalty.

As a result of the industry feedback received during this consultation, the government has proposed some changes to the transfer rules for members to retain their protected pension age (PPA) following block and individual transfers where they transfer their pension to another provider.

It clarified, however, that the PPA is not intended to to apply to the other rights members accrue in the receiving scheme, explaining that the aim is to protect transferred pension rights, “not enhance them”.

The draft legislation is also expected to introduce a window so that individuals have an opportunity to join a pension scheme by 5 April 2023 where the scheme rules on 11 February 2021 already confer an unqualified right to take pension benefits below age 57.

However, the government confirmed that members of uniformed public service pension schemes and those with unqualified rights to take their pension below age 57 will be protected from these changes.

Despite the increased clarity provided by the latest proposals, industry experts have warned of potential issues, with Canada Life technical director, Andrew Tully, arguing that "what should have been a simple process has turned into a hugely complex mess".

He explained: “The process to decide which individuals retain a right to an earlier pension age is completely arbitrary, being based on the specific wording within scheme rules, which may have been written many years ago.

“It also leaves open the possibility that people will hunt around for a scheme which gives them the right to take benefits at age 55 and transfer to that before 2023. So expect frantic transfer activity over the next few years as people look to secure age 55 as their minimum pension age, irrespective of their birth date."

In addition to this, he stated that it was "disappointing" to see a continuation of the existing block transfer rules, warning that these were "complex" and could effectively stop savers from transferring to a more modern, flexible, cheaper contract "simply because they want to hang onto this right to take benefits at age 55".

“The legislation as drafted adds further hideous complexity to the pension system, which might be fine for pension geeks like me but for the average pension saver will prove nigh on impossible to navigate successfully without the help of a professional adviser," he added.

Quilter head of retirement policy, Jon Greer, also noted, however, that the government’s concession to allow both block and individual transfers will have removed one inconsistency from the proposals, and "may remove the jeopardy associated with losing the earlier retirement age".

However, whilst he emphasised that it was "certainly a positive" that government had listened to feedback and said it would provide details of proposed transitional protections soon, he also emphasised that the details of this regime would be "crucial".

"This regime could have a material impact on members decision to transfer, and also on the complexity of administration for pension schemes and ease of communication to members," he continued.

“Any rules that don’t quite work the way they do today will add additional complexity to the retirement planning landscape which members will have to get their head round. Will scheme members understand a transitional arrangement for a protection regime?

“While good natured in the approach, given the added complexity of these new regimes, we may well still ask whether the increase in the NMPA is really worth it."

Indeed, industry experts have previously urged the government to take a simpler approach to its proposed plans to increase the NMPA, amid concerns of unintended consequences that could impact the industry and savers "for many years to come" due to complexity.

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