24 Nov 2021
The recently published Finance Bill confirmed an increase in the minimum pension age to 57 from April 2028. However there could be changes between the Finance Bill becoming the Finance Act.
Individuals do not have the ability to protect a retirement age of 55. However schemes that had the right to take benefits at 55 in their rules as at 11 February 2021 will be able to protect that age for existing members and any others that joined that scheme by 3 November 2021. Individuals in the process of transferring to such a scheme before the 3 November 2021 can still benefit from protection if the transfer completes after.
The scheme rules must specifically gave an ‘unqualified right’ to retire at 55 for protection to apply. This isn’t as simply as being able to take benefits from age 55, but rather that the member doesn’t need the consent of the trustees, the scheme administrator or employer to take benefits at this age. This is a more common feature in occupational schemes.
Many SIPPs and personal pensions will not benefit from protection because they have adopted standard scheme rules which link the date benefits can be accessed to the ‘normal minimum pension age’ rather than explicitly stating the actual age, such as age 55. Clients in schemes with existing protected pension ages will not be affected by this latest increase.
So for those without a protected pension age, this means:
- Individuals who reach age 57 before the 6 April 2028 will be unaffected
- Individuals born after 5 April 1973 will have their normal pension minimum age increased by 2 years
- Individuals born between 5 April 1971 and 5 April 1973 will be able to access their pension from their 55th birthday as long as they access it before the 6 April 2028. If taking benefits after this date they will need to wait until their 57th birthday
Individuals in protected schemes can transfer and retain a protected age although this depends on the type of transfer:
- A block (buddy) transfer, where more than one member of a scheme transfers at the same time to the same receiving scheme, will maintain the protection on the funds transferred and any new monies that are paid into that new scheme.
- An individual transfer will also retain the protected age, but the funds transferred will be ring-fenced in the receiving scheme. Any new contributions would go into a separate arrangement that would have a minimum pension age of 57.
Fortunately a two year delay is much easier to plan for than the five year increase to the retirement age which occurred in 2010 when it increased from 50-55.
As protected pension ages are likely to be the exception rather than the norm it is important individuals who are affected and still wish to retire at 55 accrue savings in other tax wrappers such as ISAs, bonds and collectives to cover their income needs in this two year period.
It is also vitally important that any individuals considering pension transfers need to check if the scheme they are intending to move from has a protected pension age. However it is also important individuals are in a scheme which provides the investment options they need and offers all the flexibilities and benefit choices introduced under ‘pensions freedoms’ in 2015.