What happens if you straddle pension age increase?

NoMore

theblueflash said:

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? 

Yes this is the question that has not yet be answered and people keep misunderstanding. It’s not about protected ages, you already can access your pension in 2027 at 55 under the current rules, the same as everybody else born before April 1971. The problem is unlike those people the rules are going to change such that your age prevents access after you have accessed your pension and nobody knows what happens then. 

Sea_Shell

bownyboy said:

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.

Yes I did read it.   This is the paragraph where clarity is needed.     What do they mean by "switched off".    That could read like your access will have to cease, even if you've already started to drawdown at 55. 

theblueflash said:

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? 

Exactly.   That would be "nuts" if that's how it will work, so hopefully it won't.    I want my "nuts" to remain accessible, once I start to gather them in.   

Completely separate issue (IMO) to the talk of "protected ages", but I will investigate my two main funds.

Aviva and Royal London.     I was thinking of transferring in my RL to my Aviva, and drawing down from one pot, as Aviva are very easy to deal with (DH's went smoothly)

Sarahspangles

Sea_Shell said:

bownyboy said:

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)

Exactly.   That would be "nuts" if that's how it will work, so hopefully it won't.

Steve Webb’s article refers to ‘the HMRC view’, which suggests he’s spoken to someone involved in developing policy on this and if so, it is how it will work. I don’t know whether there is still scope/time for lobbying to change this.

I think when the change was first considered the option to raise the minimum age incrementally must have been considered, as that has been the practice followed for state pension age. This wasn’t the chosen option, I suspect this has something to do with not wanting to have changes at any point other than the beginning of the tax year.

I wonder if anyone has quantified the extra tax they will pay by drawing the pension they need to bridge the gap before the change to 57? 

Sea_Shell

I'm guessing clarifying this issue isn't going to be high on the priority "to do" list of the new government.  Unless they make big changes 😲

We'll just have to keep our eyes peeled for any announcements or publications.

Did anyone get an answer from that contact at HMRC?

artyboy

Lordy, I'm now almost glad I was born *just* the wrong side of this mess, I might not like having to wait 2 more years, but at least the restriction is clear and I can plan for it with ISAs etc...

PParka

Here's the latest reply I recieved from Vanguard:

"Any funds that you have crystallised on or before 5th April 2028, you will be able to access. Therefore, if you crystallise your entire pension pot by 5th April 2028 and have all funds sitting in the Pension Drawdown pot, you will be able to draw taxable income from here even after the minimum pension age increases to 57."

littlemissbossy

I just thought I'd add to this with some info I've received from Scottish Widows... 

I was born in June 1971 btw.

"If you do not take any of your benefits before 6th April 2028 then you will have to wait until you are 57 before you can start taking benefits.

If you take your benefits in full before 6th April 2028 then you will not be impacted by the new legislation changes, however, if you don't take all you pension benefits by 6th April 2028, you may have to wait until you are 57 before you can continue taking benefits from your pension.

We are currently awaiting clarity on this position for policy holders, such as yourself, who have the option not to take all their pension benefits before 6th April 2028 whilst they are not yet 57 years old.

We will be writing to you in due course, once the government has clarified this position."

So still some clarification needed.

Sea_Shell

Plus, there is now the added uncertainty of the upcoming budget.

It's anyones guess what the outcome of that will be on this issue.

Logan72

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.

Still shocking everytime I read it.

Marcon

You've now made five posts today on the same topic. It'll be the same answer each time, so maybe stick to one post?