Background

On 20 July 2021, the UK government published its policy paper (NMPA Policy) on the proposed increase of the normal minimum pension age (NMPA) from age 55 to age 57 with effect on and from 6 April 2028. This follows on from the previous increase in NMPA from age 50 to age 55, which was effective from 6 April 2010. However, this latest increase is stated not to apply to members of the firefighters, police and armed forces public service schemes. This measure supports the UK government’s agenda around fuller working lives and is anticipated to have indirect benefits to the economy through increased labour market participation, while also helping to make sure pension savings provide for later life. The change will also coincide with the increase to the state pension age from age 65 to age 67.

Subject to a higher age being stipulated in pension scheme rules, the earliest a UK pension scheme member can currently access their pension benefits without incurring a tax charge is age 55. The only exceptions to this are where members have a lower protected pension age or are in ill health. Since the pension freedoms were introduced in 2015, at retirement members are no longer limited to taking just a lump sum and an annuity, but can also access their pension benefits flexibly through income drawdown. A consultation on the implementation of the increase and a proposed framework of protections for pension savers who already had a right to take their pension at a pre-existing pension age closed on 22 April 2021 and received 142 responses.

Implications of change

The NMPA Policy also considers and identifies the possible impacts of the increase in NMPA. The UK government considers that this measure will impact men and women equally as the NMPA is the same for both genders. However, it does expect the change to impact older individuals more than younger ones. This is because it is raising the pension age and those closer to this age will be immediately impacted more than those who are more than 10 years away, as it is expected that they will have ample time to adjust and financially plan.

To mitigate this impact, a new form of protected minimum pension age will be available. Although not finalised, the draft legislation introduces an option for individuals to become members of a pension scheme after 11 February 2021 and before 5 April 2023 which contains an actual or prospective right under that pension scheme to any benefit from an age of less than 57, but not less than age 55. A further requirement is that under such pension scheme a right was conferred within the scheme rules on or before 11 February 2021, and the right was then conferred on the member or would have been had the member been a member of the scheme on 5 April 2023. This way some members should be able to retain a normal minimum pension age of 55.

In practice, there are also consequences for pension scheme trustees. Before the new NMPA is introduced, trustees should check the rules of their scheme to see if any amendments are required. For example, do the rules refer to a specific age for early retirement or do they reflect the statutory minimum. A review of pension scheme communications should also be reviewed and updated, such as retirement packs.

Employers should be alerting their employees who are members of a company- sponsored pension scheme of the changes, or confirming with their pension provider to ensure they are notifying.

If you would like more information about how we can help you understand the implications of the changes, and new requirements for a protected NMPA on documentation and practice, please get in touch.