Here is the announcement from the Treasury that will confound schemes whose rules protect members from increases to the minimum pension age beyond a member’s 55h birthday.
Most transfers into such schemes are allowed and the deadline is backdated to a minute to midnight yesterday!
What this will mean is that transfers into consolidators with rules that protect the taking of benefits from 55 will not be allowed.
These were the rules as described on Aegon’s website, prior to today’s announcement (my bold).
The government intends to introduce a protection regime to apply to all types of UK registered pension scheme (occupational and non-occupational schemes) that will allow benefits to be taken before age 57 (but not earlier than age 55) after 5 April 2028 where a protected pension age is held.
Essentially, the protection regime will work by allowing anyone who is a member of a pension scheme by 5 April 2023 that had an ‘unqualified right’ in the scheme rules at 11 February 2021 to take benefits from their arrangement at an age below 57, to be able to take benefits at that younger age even after 6 April 2028. If protection does apply, this right will apply to all money paid into the arrangement. Note – 11 February 2021 was the date the initial consultation document was published.
There will be no need for individuals or schemes to apply to HM Revenue & Customs to benefit from the new protected pension age option.
My understanding that at least one large master trust has a protected retirement age of 55 (albeit by sloppy drafting). This has big implications for the transfer market and especially the small pots initiative. It flies in the face of the consolidation agenda.
The problem for master trusts affected is a technicality written into scheme rules which cannot be overridden, other than with a statutory over ride.
Consequently, if you are looking to consolidate your benefits to an affected scheme, unless you were underway yesterday, your plans are going to have to change.
All this , to protect against rogue advisers exploiting a two year loophole to get people out of pensions they almost certainly should have stayed in. Nobody objected to the logic of increasing the Minimum Pension Age in line with state pensions, when the idea was mooted in 2014, nobody who understands mortality sees why 57 shouldn’t become the new 55.
The argument against introducing a statutory override when RPI switched to CPI was to protect people from vested property rights (losing RPI was bad news – the right could not be overridden. But this argument does not apply to the taking of DC benefits where there is no loss from waiting two years, indeed there is much to be gained from doing so.
To call this unfortunate would be an understatement, there are a number or phrases that come to mind, but none I want to publish.
Today the government is publishing the Finance Bill 2021-22 which will include a clause to increase the normal minimum pension age from age 55 to age 57 from 6 April 2028. This increase in the normal minimum pension age was announced in 2014 in the response to the consultation on ‘Freedom and Choice in Pensions’ and the draft clause was published in July 2021. The normal minimum pension age is the lowest age at which the majority of members can take benefits from a registered pension scheme without incurring tax charges, except in cases of ill-health.
This change will not apply to members of certain uniformed public service schemes, nor to those whose scheme rules provide an unqualified right to take benefits before age 57. Members with these rights will have a protected pension age.
The draft clause included a window of time during which people could either join or transfer into a scheme which can offer a protected pension age. The window was designed to ensure that those in the process of transferring a pension could complete their transfer and not unexpectedly lose the right to a protected pension age. Stakeholders have subsequently expressed their concerns about this window running until 5 April 2023 as originally proposed, including possible adverse impacts on the pensions market and on pension savers.
The Government believes it is right to offer a protected pension age to those whose scheme rules give them an unqualified right to take their pension before age 57. The Government also believes it is right that those in the process of transferring their pension do not unexpectedly lose the right to a protected pension age. However, after listening to stakeholder views on the draft clause, the Government has decided to shorten the window. The window closed at 23:59 on 3 November 2021. Those who have already made a substantive request to transfer their pension to a pension scheme with a protected pension age of 55 or 56 will still be able to keep or gain a protected pension age assuming the transfer is completed in accordance with the current regulations. This shorter window will help address the issues raised by stakeholders whilst also being fair for pension savers.
Ordinarily this change to a Finance Bill clause would have been announced at Autumn Budget 2021. On this occasion, giving prior notice of the shorter window ahead of its closure on 3 November 2021 could have led to unnecessary turbulence in the pensions market and led to some consumer detriment. Some pension savers could find themselves with poorer outcomes (or even be the victim of a pension scam) if they were rushed by rogue advisors to make a quick transfer in the short time period before the window closed.
A Tax Information and Impact Note for this clause is also being published today.