Retirement: New NMPA, a Trojan Horse?
The Treasury consultation on the implementation of the increase in the normal minimum pension age (NMPA) closed for comments on 22 April. We now wait, with somewhat bated breath, to learn what form the legislation will take in respect of the increase from 55 to 57 as of 6 April 2028.
Rumblings have surfaced about the intention to offer some form of protected pension age for individual members of any registered pension scheme (occupational or non-occupational) who have a right under the scheme rules to take pension benefits at an age below 57 as of 11 February 2021. There have been various views put forward as to whether or not many schemes will satisfy the relevant criteria, with conjecture around whether or not scheme rules need to explicitly state that there is the right to take benefits at age 55 in order to provide the protection.
You may recall that the NMPA increased from 50 to 55 back in 2010, but for those individuals with a retirement age below 55 at 5 April 2006 they had the opportunity to protect the earlier retirement age provided the necessary criteria were met. The February consultation document does suggest the proposed protection regime will differ in certain aspects from that available in 2006.
It provides little in the way of clues as to how it will work other than stating that an ‘existing right within the scheme rules’ means, an ‘unqualified right’. To try and encapsulate my thoughts on this, I considered the protection afforded to occupational schemes applicable from 2006. The stipulated criteria to have a protected pension age included the following:
• on 5 April 2006 the member had the right to take a pension and/or lump sum before they were 55
• that right was unqualified
If we take this as a basis for how the new regime may apply, then in my opinion, and it is only that, as at 11 February 2021 the default position for a lot of schemes was to allow benefits to be taken from 55. Then the critical issue is whether this right was unqualified. Again, referencing the appropriate past legislation/guidance, the individual had an unqualified right to take benefits if they didn’t need the consent of anybody before they took (take) their benefits. So, if the scheme, for example, stated that the consent of the trustees or employer was required, then it was not an unqualified right, meaning they could not have a protected pension age.
Taking both aspects into consideration, I believe many current schemes will satisfy the first criterion, and unless there is something specific in their scheme rules, they should be able to satisfy the second criterion.
In my opinion, a significant number of schemes will therefore satisfy the requirements, giving individuals who were members of such schemes on 11 February 2021 a protected pension age, provided of course, the introduced legislation follows similar lines to that introduced for occupational schemes from 2006.
Regardless of whether or not an unqualified right to take benefits before age 57 exists, the outcome will be as per the table below:
Note that in the table a block transfer is referenced as the consultation intimates that for an individual to retain the proposed protection on any subsequent transfer to another scheme, then it must be in the form of a block transfer.
However, there is no detail as to how the block transfer rules will apply and so there are some possible anomalies. A simple one is how will an individual be treated if they initiated a transfer from a scheme pre 11 February, in which they would have had a protected pension age, but it wasn’t concluded until after that date. Under the receiving scheme there will also be protection for members at 11 February, but as there was no requirement for a block transfer at the time of starting the transfer the big question is whether the individual will lose their protection?
Unfortunately, for individuals in that position the “horse has already bolted” and we will now just have to wait and see what is introduced in the legislation.
This blog first appeared on FTadviser’s In Focus: Retirement Income column