The government has published a consultation setting out its proposals to increase the age at which people can access their pension without a tax penalty from 55 to 57 in April 2028.

Under the proposals, pension schemes would be allowed to decide how and when to move to the new ‘normal minimum pension age’ by 2028, meaning that some schemes may decide to raise the minimum age in their rules before 2028.

However, individual scheme members who have a right under their current scheme rules at the date of this consultation to access their pension below the age of 57 will be protected from the increase in 2028.

The move to increase the normal minimum pension age will be in line with the increase in the state pension age to 67 and will not apply to members of the armed forces, police or fire services.

The government has proposed that individuals can retain their protection as part of a transfer from one scheme to another, but only if they become a member of another pension scheme as a result of a block transfer, usually defined as when two or more members transfer from the same scheme, at the same time, to the same scheme.

LCP partner and former Pensions Minister, Steve Webb, warned that the proposals risked creating “second class” pension schemes.

“Whilst the increase in the normal minimum pension age from 55 to 57 had been widely trailed, the way in which the change will be implemented could be complex for savers and for schemes and risks creating ‘second class’ pensions with tougher access rules depending on when they were opened,” he stated.

“There will be a need for clear communication with members to make sure they understand the different rules which may apply to their different pensions. As we move towards an era of pension consolidation, members will have to be careful not to accidentally throw away protected rights to access a pension at 55.”

Many individuals and sponsoring employers will need to “carefully consider” the implications of the proposed increase, warned Hymans Robertson partner, Michael Ambery.

He continued: “In particular it will have an impact to the decisions on the timing of when they take their pension benefits. Individual pension savers could be put off by changes that on the face of things may just sound like you need to work for longer and money is locked away. In the current environment saving for retirement and what that looks like may mean this may feel unpopular.

“A change to the earliest point at which an individual can claim pension benefits and the payment of benefits such as state pension and other pensions becomes a juggling act where an individual will need help and support in order to determine best approach and timing of taking benefits.
 
“Most pension arrangements are still based on anticipated retirement at age 65. Recent experience shows less than half of individuals actually retire at the age they have targeted. This means that individuals could be invested incorrectly.
 
“If there are changes, as proposed in this consultation integrating retirement age and adequacy, and communicating this clearly to members, will be key to ensure that any change legislation is understood and made appropriate for the individual investor.”

Canada Life technical director, Andrew Tully, said the confirmation of the timing of the increase would be “welcome” to savers and advisers and give time for “appropriate planning” before the change comes into effect.

However, he noted that the proposed continuation of the block transfer rules was “disappointing to see”.

“These rules are complex and can prevent individuals benefiting from the pension freedoms, by taking the most suitable option for their circumstances,” he added. “Removing the block transfer rules and allowing those affected to keep their entitlement to a lower pension age on transfer would be a positive move.”

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