What happens if you straddle pension age increase?

JoeCrystal

Well, it is quite possible that HMRC / Treasury does not know yet, either! There are still a few years to go, and I assumed the guidelines haven't been written yet!  As far as I know, legislation has nothing to say about people caught in the gap. Or they will leave it to individual schemes to decide instead.

We have slightly fewer than four years before it kicks in, and considering how often rules and laws are amended, the Government might cancel the increase!

Marcon

JoeCrystal said:

Well, it is quite possible that HMRC / Treasury does not know yet, either! 

Then they need to say so!

JoeCrystal said:

As far as I know, legislation has nothing to say about people caught in the gap. Or they will leave it to individual schemes to decide instead.

If you look back in this thread, HL are apparently already giving their interpretation, and at least one board of trustees appear to have said no early retirements before age 57. It really shouldn't be for individual providers or schemes to 'decide' - that simply leaves the way open for HMRC to come back and say that their take on the legislation doesn't accord with theirs.

ProDave

Just in case this is relevant, I accessed one of my DB pensions at age 50, just after the general age had been raised to 55.  I was able to do this because the scheme I was in had a specific clause about accessing pension from age 50 and the law changing the general age to 55 allowed for such clauses to override the 55 age.

I wonder in the cases being discussed here there is a difference between my accessing a DB scheme pension at an earlier age with a well defined set of rules, and accessing a SIPP?  The SIPP does not come with a comprehensive set of rules about when and what you can draw from it, just the law, so if you had just started drawing from it at age 55 and the limit went up to 57, it would seem quite reasonable for the SIPP provider to say sorry no more until you are 57.

It is a shame there is no official clarity from hmrc.

One work around might be to start drawing your SIPP at a higher rate at age 55 knowing withdrawals will then stop, and then when you re start drawing do so at whatever normal rate you want.  

bownyboy

I emailed Money Helper and this was their response:

As you will be age 55 on (date) in 2027, this is before the change to age 57 which takes place on 6 April 2028.  Hence you will be able to start taking money out of your pension when you reach age 55.

However, please be aware that people born between 6 April 1971 and 5 April 1973 may be caught in a transitional phase, possibly accessing their pensions at 55, then losing access from 6 April 2028 until they reach age 57.  We have yet to hear what any transitional arrangements might be.

So even the government back advisory service doesn't know what the arrangements are as they currently stand.

Fruga

From the HMRC thread referenced above there is this link:

https://www.gov.uk/government/publications/increasing-normal-minimum-pension-age/increasing-normal-minimum-pension-age

I have emailed the contact address, there is also a phone number. I would encourage anyone affected to also make contact.

Further advice

If you have any questions about this change, please contact Steve Darling on Telephone: 03000 512336 or email: pensions.policy@hmrc.gov.uk.

littlemissbossy

Thanks for all this info. This situation will apply to me (born June 71), I’ll keep an eye on it. 

bownyboy

I emailed Steve Webb who answers pension questions on This is Money website. This was his response (you can check it out here: https://www.thisismoney.co.uk/money/pensions/article-13370461/Can-private-pension-55-bizarre-birth-year-quirk-STEVE-WEBB-replies.html)

Steve Webb replies: The issue that you have raised could affect well over a million people who may find overnight that they have to wait up to two more years before they can access their pension pot.

It all relates to something called the 'normal minimum pension age'.

HMRC takes the view that it gives you tax relief on your pension contributions only because you are locking the money up, and will only access it in retirement. 

In light of this, there has to be a minimum age at which you can draw your workplace or personal pension.

When the normal minimum pension age (NMPA) was introduced in 2006 it was set at 50, but it was then raised to 55 in 2010. 

It was set at 55 because that was ten years before the then-male state pension age of 65. Note. however, that some older pensions may retain access at an earlier age such as 50, and there are also certain exemptions for those who take pensions early because of ill health. 

With the state pension age already raised to 66 for men and women, and plans in place to increase it to 67 by April 2028, the question then arose as to what this would mean for the NMPA. 

On the basis that people will in future be working longer (and hence retiring later), the Government decided that the NMPA should also rise, from 55 to 57. This change does not apply to those in the uniformed public services such as firefighters, police and armed forces.

But whereas the state pension age increase from 66 to 67 happens gradually between April 2026 and April 2028, the rise in the NMPA will happen overnight on 6 April 2028.

This creates a very odd situation for people born in a two-year window, of which you are one. 

Suppose, for example, that you were born on 5 April 1973. In this case you will reach age 55 on 5 April 2028 and can therefore immediately access your pensions on your 55th birthday. 

However, if you miss that day (perhaps because you are busy celebrating your birthday) you will wake up the next morning to find that you now cannot touch your pensions for another two years.

More generally, anyone born between 6th April 1971 and 5th April 1973 will find that they have a period when they can access their pension at 55, but this will then be switched off for a period of up to two years until they reach the age of 57.

HMRC's view is that most pension scheme rules say that you can access your pension at NMPA, rather than a specific age. Given that NMPA can change, HMRC thinks that people will simply have to adjust to the new rules.

However, there is one concession in all of this, which is that if your pension scheme rules specifically say that you can access your pension at 'age 55' for example, rather than NMPA, then you will retain the right to access them at 55 - even when the normal age rises to 57. 

This is called a 'protected pension age'. It applies provided you were a member of the scheme before the cut-off date of 4 November 2021, and provided that this right to take a pension at 55 was included in the scheme rules as at 11 February 2021.

Of course, many people will not have a clue what the rules of their scheme say on this matter, and so they need to check where they stand if they think they might want to access their pension before the age of 57, but after 6 April 2028.

One final thing to bear in mind is to be careful if you are thinking of transferring your pension between now and then. 

If you have a 'protected' pension age in your current pension, this can be retained if you transfer to a new pension. However, you need to make sure that your new pension provider is aware of this and has administrative systems set up to deal with it. 

If your new provider is unaware of your protected pension age and simply sets up a new pension for you with an access age of 57, this cannot be undone. And in any case, all new contributions to that pension will have an access age of 57 rather than 55

As you can see, this whole thing is a mess. It is a bit of a lottery as to whether your pension scheme rules referred to age 55 or NMPA. 

But if your birth date falls within this two-year window, you need to be aware that the age at which you can access your pension will jump by two years after your 55th birthday, and to plan accordingly.

You can find a legally precise definition of the change inHMRC's pensions tax manual.

Sea_Shell

Has any further clarity on this issue been published anywhere yet?

MeteredOut

Sea_Shell said:

Has any further clarity on this issue been published anywhere yet?

Did you read the post just above yours?

It seems to set out HMRCs reasonings quite clearly, and explains some scenarios where those in the transition period may still be able to access their pension at age 55 (specifically whether the scheme rules state that explicit age or just refers to the the NMPA).

theblueflash

I had read that article previously and I didn’t think Steve grasped the question, certainly not mine anyway. Surely they cannot create a scenario where someone could e.g. commence drawdown age 55 in Apr 2027 (Me) and then stop again in Apr 2028  due to being 56, commencing again in Apr 2029 - surely!?! That would be a special kind of nuts. So I’m presuming when they say access at 55 - that access is maintained from that point and not affected by the cliff edge date?