Increase to Minimum Pension age from 55 to 57 on 6th April 2028

Retired_Minky

I just opened a new pension last month. As that's before the cut off does that mean I can access it at 55?

Alexland

Retired_Minky said:

I just opened a new pension last month. As that's before the cut off does that mean I can access it at 55?

Only if the scheme rules on 11th Feb 2021 had an unqualified right of access at 55.

hugheskevi

Given the questions about whether schemes or individuals have a protected minimum pension age, it may be worth recalling paragraph 2.13 of the Consultation Response, which provides an example of when schemes would have a protected minimum pension age.

2.13 The Government’s intention can be illustrated broadly by two examples. Where the rules expressly state that benefits can be drawn from 55, the Government considers that would amount to an unqualified right. Conversely, where the rules refer to the NMPA or its underlying legislation(e.g. permitting benefits to be taken from the lowest age consistent with the Finance Act 2004 regime) that would not confer an unqualified right to a PPA; it would merely provide for payment from the youngest age prescribed from time-to-time. It is acknowledged there may be more nuanced cases where professional judgement is needed about the effect of particular drafting.

Scheme literature is irrelevant, it is the rules of the scheme that matter. So even if literature prominently states members can draw their pension from 55 that does not give any protection.

MarkCarnage

So even if literature prominently states members can draw their pension from 55 that does not give any protection.

Which makes a mockery of the whole thing....if a comparable situation arose in pension transfers advice, the FCA and Ombudsman would be all over it like a rash. 

Doesn't affect me personally, but I can see why some will be aggrieved. 

jamesd

The workarounds for this are the same ones as we had when the pre-2015 rules forced us to use some non-pension investing to obtain an even drawdown income throughout retirement: ISA and other non-pension investing sufficient to cover the delay in accessing the pension part.

Some might wish to investigate whether their existing firm advocated to the government that the chance to change should be removed so they wouldn't lose business to firms with an earlier age and act as seems appropriate. My view is that it is lamentable that some firms have demonstrated a lack of concern for the interests of their customers by advocating directly against those interests. Better IMO to use firms that align their interests with those of their customers.

For those not familiar with the older rules, before 2015 the GAD limit capped how much could be withdrawn from a pension based on your age and the gilt interest rate. The result was an income that was too low to permit early retirement because it was based on an implicit assumption that all of the money had to last for a whole lifetime, with no periods of more rapid drawing to bridge pension gaps. There was an exception for those who had existing guaranteed income of at least £20,000, well above the minimum needs of most retirees when a state pension was added.

Malthusian

jamesd said:

There was an exception for those who had existing guaranteed income of at least £20,000, well above the minimum needs of most retirees when a state pension was added.

Although not well above the minimum needs of retirees who could be trusted with full access to their pension fund. Not my opinion, the opinion of the FCA prior to 2015, which was that drawdown was only suitable for well-off, highly knowledgeable, high-risk investors with at least £100,000 in their pension fund and other sources of income.

Bear in mind that the State Pension came off the £20kpa if it was in payment as well. However the State Pension provided much less in terms of a retirement income foundation in the pre-2015 era, except for those who had a good level of income and benefited from the earnings-linked State pension or contracted-out schemes.

Until 2015 the assumption behind pensions was that eventually it would be converted into a secure regular income (although there was limited scope to faff about with drawdown on the way there, but only for a small minority of high-risk investors as already mentioned). Draining them to bridge the gap between retirement and secure income starting was simply not considered as an option. For that you needed ISAs or other non-pension funds. (We can ignore flexible drawdown as it had barely opened its eyes and grown fur before pension freedoms rendered it obsolete.)

Under the old rules, paying tax on money to put them in ISAs or other freely-accessible felt less like missing out compared to putting them in a pension, because of the restrictions on pensions and the eventual death tax.

I sympathise with anyone who shovelled money into a pension because the tax relief made it clearly more desirable than the ISA option, and now finds they can't get it out for another two years, but it still seems a bit mad. The increase was trailed for years and years and the lack of transitional protection for the increase from 50 to 55 in 2010 meant that there was no reason to think it would be any different in 2028. For all the wittering about protected ages, it has been clear as mud as to whether anyone in DC pensions would benefit or not, so the default assumption should have been that it would work the same as in 2010, and if you were under 57 in April 2028 you would need to wait until then.

jamesd

You might recall that I was one of those who participated in the survey that led to the 2015 pension freedoms. My feedback ended with roughly "if you want me to use pensions more, stop forcing me to use non-pension investing to get a level income throughout retirement". The earlier parts of the feedback went from the years after state pension was in payment then earlier with work DB in payment and earlier still with no DB, just DC, pointing out that the GAD limit was most restrictive at the time when a person with prudent level income plans would need it to be least restrictive so it could bridge the gap.

We can hope that most people who will need to provide for an extra two years using non-pension money aren't going to be too badly harmed by it, though of course they will lose the at least 6.25% gain from being able to put the money into a pension (assumes no lifetime allowance charge and basic rate in and out).

Reg_Smeeton

Apologies if already discussed, do these proposals affect members of the LGPS and those paying APCs/AVCs?

Alexland

Reg_Smeeton said:

Apologies if already discussed, do these proposals affect members of the LGPS and those paying APCs/AVCs?

I'd suggest you ask LGPS directly.

Alexland

FT Advisor just published some CPD providing some detailed analysis on how the drafted legislation handles various transfer scenarios.
https://www.ftadviser.com/pensions/2021/12/14/immediate-impacts-of-the-minimum-pension-age-increase/
In particular: "If your client was a member of an NMPA 55 scheme before November 4 2021, they can transfer other benefits to it and inherit the right to take benefits from that earlier age, just like the old NMPA rules."