The Government has announced it has closed the window of time during which pension savers can join or transfer to a pension scheme that offers a ‘protected’ pension age of 55.
In its policy paper, HM Revenue & Customs said it had made the decision to close the transfer window on 4 November following concern from the industry that giving savers until 2023 could have encouraged more people to move away from their current scheme, including some workplace schemes.
The window was originally offered to help ringfence certain rights ahead of a rise in the new minimum pension age (NMPA) to 57 in 2028.
While the move was welcomed by pension experts, there was agreement that more must be done to simplify the pension system further.
Steven Cameron, pensions director at Aegon, warned that the NMPA will continue to create complexity for members and schemes alike.
Cameron said: “We’re pleased that the Treasury has listened to widespread concerns over aspects of its controversial proposals around how to implement an increase in the Normal Minimum Pension Age.
“The way the protections were previously drafted, someone joining a scheme with such protections before 6 April 2023 would have retained the right to the earlier access age. This could have distorted the market, encouraging individuals to seek out such schemes before the cut-off date even if better value alternatives were available.
“We support the Treasury removing this ‘window’ by bringing forward the cut-off date to today, 4 November. This means only those already in schemes offering an unqualified right will retain the right to access that pension before age 57.”
Cameron added: “However, changing to a new normal minimum pension age will still create complexity for members and schemes. If a member in future transfers between schemes, they may find part of their benefits can be taken from say age 55 while other parts won’t be accessible until age 57. This will complicate communications to members as well as record keeping within schemes.”
Jon Greer, head of retirement policy at Quilter, also welcomed the decision but called for the Government to go one step further and simplify the pension system.
Greer said: “Having a two-year window could well have encouraged pension savers to move away from their current scheme, including some workplace schemes, purely to get their hands on their pension at a lower age, rather than for considerations around cost or suitability.
“It could also have left pension scheme members vulnerable to pension scams as it would have ignited a ‘buy it now’ pension transfer market with heightened transfer activity that scammers would have thrived in. This is certainly a much better position than what was previously proposed.
“That said, we hope that the rules on transfers do not bake in additional complexity into the pension system where pension schemes will have to create a ring-fencing system to certain rights, albeit for a much smaller cohort. This complexity is all for a two-year increase in the pension age, which for the overwhelming majority isn’t going to make a jot of difference. And it will still add complexity to the future pension dashboard system, and ‘simpler’ pension statements.
“The government should grasp this opportunity to simplify the pension system, and a good place to start is on the rules around block transfers.”
Andrew Tully, technical director at Canada Life, echoed the sentiment: “This is a sensible move by Government which will help reduce the risks for clients. There was a real concern people would look to transfer between now and 2023 based on access at 55 rather than wider aspects such as charges, flexibility or service. It should also reduce the ability for scammers to prey on client uncertainty.
“Despite this the overall move to age 57 is still more complex than it needs to be. The NMPA should either be moved to 57 for all, with very limited exceptions, or the Government should retain age 55 and re-think its entire policy around minimum pension ages. We still have time to pause at this point rather than rushing forward with legislation.”
