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Govt’s NPMA plans will ‘complicate things considerably’

13 April 2021

Retirement specialist Quilter has urged the government to rethink its plans to raise the minimum pension age to 57, amid concern the change will “complicate things considerably” for pension savers.

The government announced in February that it would press ahead with proposals aimed at increasing the normal minimum pension age (NPMA) from 55 to 57, in line with the rise in state pension age from 65 to 67. It has argued that increasing the NMPA reflects the increases in longevity and changing expectations of how long people will continue to work and spend in retirement.

However, Jon Greer, head of retirement policy at Quilter, believes the proposal has been ill-thought through, with “scant evidence” that the change would alter people’s behaviour.

Greer says: “We appreciate the theory behind the change to 57 and the government’s concerns around people having enough to live off in retirement. However, if you are worried about the longevity of people’s pension pots and people accessing their savings too early, you would not move the NMPA to 57.

“Looking at the data, it would appear a large number of people with sub-scale pensions simply cash in their pot at the earliest possible opportunity. Giving them an extra two years of saving isn’t going to change behaviour and will do very little for their prosperity.

“The current government also made clear it sees the 10-year gap between the NMPA and state pension age as appropriate ‘in principle’, but it does not seem they are overly convinced themselves as it does not intend to link NMPA rises automatically to state pension age increases ‘at this time.”

Greer also warns that the government may be underestimating the number of people with an unqualified right to take benefits at 55 and this change will likely cause greater complexity for the Department for Work and Pensions’ efforts to consolidate small pots and cause retirement planning to become more complex going forward.

At present, the Government is proposing that individuals with a protected pension age of 55 who wish to transfer can only retain this benefit as a result of a block transfer.

Greer explains: “The proposed NMPA rules effectively remove a benefit should a member wish to transfer to a more appropriate pension scheme and goes completely against the DWP’s work. This risks leaving people stranded in more expensive or inflexible pensions just to safeguard the age benefit.

“Essentially, the rules around block transfers complicate things considerably and as such need a rethink if the government is to proceed with this change.”

According to Greer, the government has two alternatives – to either keep the NMPA at 55 or remove proposed transitional protections and move everyone to 57.

Greer adds: “The easiest thing to do is to keep the NMPA at 55 and given the complexities the change introduces, would be the sensible thing for the government to do. If the government is certain it wants to proceed down the road of increasing the NMPA then it would arguably be better just to move everyone to 57 and do away with any proposed transitional protections. This will make the change easier to understand and limit the unintended consequences, although communication will be required for those it has the biggest direct impact on.”

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