Increase intended to align with the raising of the State Pension age
One of the less publicised pension changes being planned is the raising of the Normal Minimum Pension Age (NMPA) from 55 to 57. This is to be effective from 2028 and will be included in next year’s Finance Bill. The NMPA is the age that you can usually first access pension benefits without incurring penal tax charges.
Pensions tax rules in the UK are some of the most complicated aspects of UK tax legislation – not ideal when pretty much everyone has to interact with them. The last thing that is needed is anything that significantly adds to this complexity, particularly where the impacts will be felt for decades.
Increasing on a staggered basis
The increase in NMPA to 57 is intended to align with the raising of the State Pension age to 67, and will reinstate the ten year difference between the two ages. The State Pension age is increasing on a staggered basis depending only upon your date of birth. Although younger people lose out by having to wait longer, the position is clear to everyone and is as simple and fair as it can be. Unfortunately, the implementation of the increase in the NMPA is neither simple nor fair and it is going to be incredibly complicated.
The increase in NMPA will be subject to protections where some will remain entitled to access their pension at 55. Whether someone has a protection will be decided on a pension scheme by pension scheme basis. It will depend upon whether the pension scheme on 5 April 2023 gave an unqualified right to take benefits as at 11 February 2021.
Transferred to a new pension scheme
HM Revenue & Customs have indicated that where pension schemes rules include a reference to benefits being taken from age 55, this would be an unqualified right; however, a reference to taking benefits from the NMPA would not meet the requirement.
There will be a ring-fencing where funds in a pot with protection are transferred to a new pension scheme, with funds transferred (and any investment income on those funds only) accessible at 55, whereas any new payments in would only be accessible at 57. There is a window until 5 April 2023 to transfer into a pension scheme that has the right to access at 55, provided that the scheme had this right as at 11 February.