Stephen McPhillips, technical sales director, Dentons Pension Management, looks at what has been proposed regarding the Normal Minimum Pension Age (NMPA) and what this means for advice firms and pension providers.
As readers may be aware, the introduction of so-called “pensions simplification” on 6 April 2006 brought with it a raft of important changes and new concepts to the pensions landscape. One of these was the introduction of a “normal minimum pension age”.
What is the Normal Minimum Pension Age?
The normal minimum pension age (NMPA) is the earliest age at which a pension scheme member can access retirement benefits from a Registered Pension Scheme without incurring unauthorised payment tax charges – unless the member is in ill-health or has a “protected pension age” that existed pre-6 April 2006. An example of someone who might have a “protected pension age” could be a professional footballer or other professional sportsperson.
Upon its introduction, the NMPA was set at age 50. It was subsequently revised upwards to age 55 with effect from 6 April 2010, with no form of transitional protection for any scheme members who may have been affected by the upward revision.
Unless a member benefitted from a “protected pension age” that existed prior to 6 April 2006, the member became subject to the NMPA upon its introduction, even if he or she belonged to an occupation that traditionally benefitted from a lower retirement age than was the norm.
Where do we stand now?
Following the Government’s Consultation on “Freedom and Choice in Pensions” in 2014, it was announced that the NMPA would increase to age 57 in 2028 to coincide with the rise of State Pension Age (SPA) to 67. Unlike revisions to SPA, changes to the NMPA are not being phased-in based on dates of birth.
An HMRC Policy Paper titled “Increasing the normal minimum pension age for Pensions Tax” was published on 20 July 2021. It followed a consultation that was launched on 11 February 2021 and the consultation period closed on 22 April 2021. The consultation and resulting Policy Paper were designed to deal with the practicalities of implementing the change to 57, as well as dealing with the practicalities of protecting members whose NMPA was to be retained as 55. Draft legislation (and explanatory notes) accompanied the Policy Paper and a further consultation period (on the draft legislation itself) ended on 14 September 2021.
Based on the initial draft legislation, it appeared that scheme members would have until 5 April 2023 to join a pension scheme, which offered an NMPA of 55, thereby meaning that the impact of the increase to age 57 could be mitigated by those people who would have been otherwise affected by it. Some industry commentators noted that this provided a window of opportunity – not just for scheme members but also for scammers who might have used it to pressure members into transferring into inappropriate vehicles.
In order to be entitled to an NMPA of lower than 57 (but not lower than 55), it appeared that the scheme’s governing documents had to (as at 11 February 2021) confer an “unqualified right” to take retirement benefits from the lower NMPA specifically (rather than a right to take benefits, for example, at an NMPA as defined in legislation from time to time). Hence, in order for an NMPA of 55 to apply, age 55 would have to have been specified in the governing documents as at 11 February 2021.
It appears that an “unqualified right” is one that is not subject to consent from anyone else – for example, an employer in an occupational pension scheme or scheme trustees.
Autumn Budget 2021
Although it was not announced in the October Budget (nor any documents released at the time), a significant announcement was made by HM Treasury on 4 November 2021 and revised draft legislation was also published at the same time. These largely closed the window of opportunity to join a scheme offering an NMPA lower than 57 by 5 April 2023. In fact, unless significant progress had already been made in transferring / switching from one Registered Pension Scheme to another by midnight on 3 November 2021, members might be subject to an NMPA of 57 even if the receiving scheme had offered an “unqualified right” to access retirement benefits at, say, age 55.
Depending on the timing of transfers into a scheme, one set of transferred-in rights might carry an NMPA of 55 whilst another set might carry an NMPA of 57. In turn, this would mean ring-fencing of benefits within the one scheme that the member belongs to.
In relation to pension transfers / switches, it also appears that there is a significant distinction between a block or “buddy” transfer (where at least one other member of a scheme transfers at the same time into the same scheme) and an individual transfer involving one member:
Block transfer –
- All rights must be transferred (i.e. partial transfers would not qualify)
- Both transferred rights and future contributions to the receiving scheme will retain the lower NMPA
- No ring-fencing of transferred rights would be required
Individual transfer –
- Partial transfers would qualify for the lower NMPA
- Ring-fencing of transferred-in rights might be required in receiving scheme
This will add to the complexity for scheme members, their advisers and the providers of Registered Pension Schemes.
Where next for the Normal Minimum Pension Age?
Given that the draft legislation is in the early stages of its passage through Parliament (as I write this), and hence is some way-off receiving Royal Assent, it is possible that further revisions will be made to it before it passes into law. Adviser firms and pension providers alike will no-doubt keep a very close watch on developments in the interim, so that the full implications for pension scheme members can be understood.