The normal minimum pension age is increasing.
The normal minimum pension age is set to increase from age 55 to 57 in 2028. In this article, we will explore what this means and the impact it will have on people’s pensions and retirement plans.
This article was updated on 28 January 2022.
What is the normal minimum pension age (NMPA)?
The normal minimum pension age (NMPA) is the earliest age at which someone can access their pension benefits (excluding their State Pension) without incurring an unauthorised payments tax charge, unless they are suffering from ill-health or have a ‘protected pension age’ – we’ll cover the latter in a bit.
The NMPA is different from State Pension Age (SPA), which is much higher. SPA is the age at which we start to receive our State Pension. The SPA for anyone born after 6 April 1970 is 67. Under the current law, the SPA is set to increase to 68 between 2044 and 2046 and following a recent review, the government has announced plans to bring this timetable forward. The State Pension age would therefore increase to 68 between 2037 and 2039.
How will the increased normal minimum pension age (NMPA) affect your pension benefits?
The age at which we can all access the money held within our pensions is typically dictated by the NMPA. This includes the following types of pension benefits:
Pension commencement lump sum (PCLS) – the tax-free cash amount most people are entitled to from their pension.
Income from a Flexi Access Drawdown (FAD) pension - where any money not taken out remains invested.
Uncrystallised funds pension lump sum (UFPLS) – where you take some or all of the money in your pension as a lump sum (part tax free/part taxable).
Annuity – where you use the money in your pension to buy an income which pays out for the rest of your life.
The minimum age at which pensions from occupational schemes such as Defined Benefit (DB) pensions can be paid is normally dictated by what the employer has written into the scheme rules. This may be different to the NMPA.
The change in NMPA doesn’t affect how you can take your benefits but it will affect when you can take them.
Let’s say you’re 55 now – you can typically start accessing your pensions right now and therefore this change in NMPA may not affect you. However, that will depend on whether you make any changes to your pensions from now on.
If you’re 54 right now, then you can typically start accessing your pensions as soon as you turn 55. As that will be within the next 12 months, this change in NMPA may not affect you. However, that will depend on whether you make any changes to your pensions from now on.
But what if you’re 48 right now and had planned to start accessing your pension from age 55? Well, this will mean you will reach age 55 in 2028 and based on these planned changes to the NMPA, you may have to wait a further 2 years before you will be able to access your pension benefits. Whether you will have to wait those extra years or not will come down to whether you have a protected pension age and whether you make any changes to your pensions from now on.
What is a protected pension age?
We will look at this in two parts – the first is the existing rules around protected pension ages which have been around since April 2006; the second is the new protected pension age regime which is being proposed as part of this change to the NMPA.
Pre-existing protected pension ages:
A protected pension age was available for those pension holders who, before 6 April 2006, had a right to take their pension benefits at an earlier pension age than the current rules allow. Different rules apply depending on the type of registered pension scheme involved.
If a pension holder was in a prescribed special or hazardous occupation and had a right to take pension benefits before the NMPA applicable on 5 April 2006 (age 50), then this right may be protected providing certain conditions are met. A list of the prescribed occupations can be found in the detailed HMRC guidance.
The new protected pension ages:
Essentially, a member of any registered pension scheme (occupational or non-occupational) who has a right under the scheme rules at the date of the government consultation (11 February 2021) to take pension benefits at an age below 57 will be protected from the increase in 2028. So for most people, they will retain the right to access their pension benefits at age 55.
Anyone who meets the conditions for a protected pension age will have the protection applied to all their benefits under the relevant scheme, not just those benefits built up before 2028.
Anyone with a pre-existing protected pension age should see no change in respect of their current protections.
For members of a registered pension scheme (active, pensioner or deferred members) who do not have such a right – such as those in possible DB schemes - they will retain the current NMPA (age 55) until April 2028, from which point the NMPA will increase to age 57.
What happens if you want to transfer your pension now or in the future (or you are in the middle of transferring)?
As is the position currently, an individual will be able to retain their protection as part of a transfer where they become a member of another pension scheme as a result of a ‘block transfer’ (which is typically where at least two people from the same pension scheme transfer in tandem to a brand-new scheme).
However, when most people transfer their pensions, they do this on an individual basis. If this were to happen, then the protected pension age of 55 would be lost. Therefore, careful consideration should be given as to whether transferring is the right thing to do right now. It may be sensible to delay the transfer until the final outcome of the consultation is known. We strongly recommend that anyone in this situation seeks financial advice on the most suitable course of action to take.
What else does the NMPA consultation say?
Certain schemes such as the armed forces, police and fire services will not be affected by these increase proposals.
Schemes will be free to decide how and when to move to the new NMPA (age 57) by 2028. For example, some schemes might decide to increase the minimum age in their rules before 2028.
The government previously indicated that the NMPA should remain ten years under state pension age (SPA) but it has now said that it does not currently intend to link NMPA rises automatically to SPA increases.
How we can help
If you would like to speak with someone about your pensions or broader finances please get in touch and one of our Financial Advisors will be happy to help. An initial conversation is at our cost.
Please note this article offers information about financial planning and should not be taken as personal advice. Tax rules can change and the benefits depend on individual circumstances. Pensions can rise and fall in value and you may not get back what you invested.