Head of Technical at M&G, Les Cameron says although the change to NMPA is a little under two years away, it won’t be long until planners will have to consider the change. He also says there is good news – in that it’s now quite clear what is on the horizon.
The planned increase in the Normal Minimum Pension Age (NMPA) from 55 to 57 on 6 April 2028 has been known about for a while. It’s the second time NMPA has increased as it went from 50 to 55 from 6 April 2010.
Back in 2010 transitional arrangements needed to be put in place to ensure continuity of pension benefits for those whose benefits had already started.
I had been running on the assumption that the transitional rules for this change would mirror those from the last change. And have been waiting patiently to see if that’s the case.
HMRC published Newsletter 180 which explains what the transitional regulations, yet to be issued, are intended to achieve.
Quite simply we will be mirroring the approach we saw back at the last change.
Taking benefits around April 2028
One key question that always arises when there are changes is what happens when someone is in the process of setting up their benefits when the change occurs.
What will be key is whether the scheme member becomes entitled to their pension benefits before the age change.
In simple terms, this means that a member who is aged 55 or 56 by April 6 2028 must have done all they need to do to enable their benefits to be put in payment.
If that is the case the fact that they did not start until after the date change does not matter they can be paid. An intention to take benefits, perhaps asking for a benefit quote will not be enough.
Where that entitlement exists, HMRC expect that the resulting pension payments can continue after April 2028 as authorised payments, even though the member is still under the new NMPA of 57. Technically, the legislation will treat the member as if they had reached age 57 immediately before the first post‑April 2028 payment.
To be clear this approach to the income payments to be set up and any linked lump sum payments.
Benefits already in payment
As you would expect benefits currently in payment can continue to be paid even though the member is under 57.
Where there is an existing drawdown pot in place then income from that pot can be started, stopped, changed or continue as is.
Where a pension in payment is transferred then the new scheme will simply be treated as the old scheme for benefit age purposes and any income can continue as is.
Key impact
The crucial point to be understood is that the transitional rules only protect the continuity of benefits that are already crystallised.
New crystallisations of benefits will not be allowed from 6 April 2028 unless you meet the NMPA, remembering that you can take benefits before NMPA where there is a protected pensions age held or the ill health conditions are met.
The main impact here will be in those phasing benefits, such as phased drawdown or regular UFPLS payments.
Phasing, by definition, is a series of benefit crystallisations. From 6 April 2028 benefit crystallisations are only allowed where you have reached your 57th birthday so, anyone who is phasing benefits and under 57 at the date, will need to stop their benefits.
It’s not explicitly called out in the newsletter but I believe the only conclusion to be had and consistent with the treatment of phased drawdowns back in 2010.
Planning implications
There are two key things planners will need to consider to ensure their clients get the benefits they need.
Firstly, identify those clients in phasing strategies and identify those who will see an interruption in their benefits come 6 April 2028.
Arrangements will need to be in place to ensure continuity of benefits for those clients phasing. One plus point is there is only up to two years to cover and not five like 2010.
Secondly, for those with clients retiring around April 2028, they will need to understand what is required for each scheme for entitlement to arise, this could be a combination of scheme rules, plan conditions and procedures.
We have not seen the actual draft legislation but, perhaps more importantly, we know what the intent is they will be delivering.
This update isn’t going to impact retirement planning here and now as the change is a little under two years away. It won’t be long however until planners will have to consider that the change is on the horizon.
The good news is, it’s now quite clear what is on the horizon.
