Better Pensions: Proposals for a New Pensions Scheme (Command 5713) – the way we were

Back in April 2010 when we moved from a minimum retirement age of 50 to 55 we were still in the “command” stage of pensions where Government made the rules and we did as we were told.  We bought annuities with our pots  because we had been in “money purchase” pensions. For most people the cost of buying an annuity at 50 was too high and waiting till 55 didn’t improve matters much.

One of the perversities of the pension freedoms was that people started confusing their pot with their pension  and people are now confusing their minimum retirement age with that word  “normal” One person I know drew her pot as a lump sum and is still waiting for the second payment. By taking away the need to buy an annuity we all feel a lot richer – but we aren’t.

So the headlines scream that John Glen is making us work another two years and we believe them – as if our meagre pots will enable us to stop work in our mid-fifties

Now , ten years on, we are preparing for 57 as the new 55 and , spurred  by scammers, we are apparently liberating our pots for encashment at 55, or at least we were until Wednesday when John Glen , said “be scammed no more”.

This is the third of three articles I’ve written on John Glen and it is the first where I have been properly informed. If you have read the first two blogs in this series, you will know that I was seriously worried that HMRC would block transfers in and out of some workplace pensions

UK Treasury move blocks millions of savers from transferring #pensions https://t.co/HV3jXmVQU6

— Josephine Cumbo (@JosephineCumbo) November 4, 2021

What HMRC is stopping is the right to transfer non-protected pensions to arrangements entered into from November 4th 2021. They are not blocking transfers in and out of protected schemes for existing members , nor are they stopping new members setting up accounts from November 4th. But new pension accounts will not have protected NMPA nor will they be able to accept protected pension rights (those rights will fall away).

Despite being given  indication to the contrary, I now know that my right to transfer (or swap) my pot remains intact. But that has taken me three days to work out!

I can transfer from a protected scheme and elect that my MNPA protection stays with me, meaning that my new provider can record part of my pension pot as available from 55 while the rest is available to me at the new Normal Minimum Pension Age.

What I can’t do (anymore) is join an MNPA protected scheme and  take an unprotected pot to get protection on it. That’s what I lost at 23.59 on the night of 3rd November 2021.

No way to treat our great workplace saving schemes

This  means that schemes like People’s Pension (which has an NMPA of 55) may have to  consider itself two schemes for the purposes of NMPA – there could be a pre Nov 4th 2021 membership and a post Nov 4th  membership. I thought that scheme rules meant all pots were treated the same way – I was wrong.

There’s a lot I have still to learn about how important scheme rules are.  People’s wrote to me and explained they were  surprised by the announcement and having to rewrite their communications to members. I have to put my hands up, my understanding (based on arguments over other pension complexities) were that scheme rules generally can’t be overridden, it is good to hear that here they can. This is from a message from People’s Pension to me,

 It’s worth noting that our scheme rules would be overridden by any legislative change, and we’ve had clear legal advice that we can continue taking transfers into our scheme. Our team is working to update our communications to ensure savers are clear of the change in the Finance Bill and what this means for them.

This is really tough on People’s Pension.  Good luck to them creating a fair policy that balances people’s rights against the right to a well and cost-effectively run pension administration . Good luck to them explaining this to their 5.3 million members.

Clearly, the minute to midnight backdated deadline took People’s Pension by surprise , I suspect it took most people by surprise – apart from those who stakeholders who were its architects.

Were the DWP even informed?

The DWP has yet to make any comment and it has been left to schemes like People’s to work things out . This is no way to introduce change, we need to have pension policy being formed and communicated for all , the confusion on this blog and elsewhere is yet another example of unnecessary complexity arriving as we struggle to stop “pension liberation” while promoting “pension freedom“.

Pension tax law cannot be written by and for stakeholders who have lobbyists camped outside the Treasury, it must be written for everyone. Schemes like People’s Pension , which carry the retirement hopes of over 5 million savers, should not be being bumped into changes into its  design and rules by last minute changes in the Finance Act 2021.

Why the NMPA is so misleading

The Normal Minimum Pension Age is a misnomer. It is not normal to consider retirement at 55 or 57, people can retire from work when they like (think the FIRE movement) but for most people, the idea of stopping work to live off savings at these ages is inconceivable. And to talk of this as a “pension age” is downright deceptive. The pots that we talk about as “pensions” are no longer being used to buy pensions. The NMPA is offering false hope.

The impact of the new rules on workplace pensions will be to make them more expensive to run.

It’s good news that People’s Pension can take individual’s money in (check their website) and good  news that it can take bulk transfers in (as they are one of three master trusts pioneering the innovative “member exchange”, but it’s bad news if a whole load of post Nov 4th members are having split benefits , either from transferring out with protected NMPAs , or because of transferring in. More record keeping, more confusion and potentially more levies if each record has to be set up as a separate pot.

How can this feed through to better member outcomes?

So while we can be thankful that we have  a workable transfer system, we have to worry that much of these transfers will find protection is lost in translation and that the tagging of pots to show “with or without” protection could  increase expenses, slow down transfer times and add to the already confused world of pensions.

Some SIPP providers, such as Pension Bee, are taking the view that they will only take transfers with protection attached, after the pot holder has agreed to give up the protection. In short they are adopting the position that they will not administer pre and post November 4th protection rights.

I hope that others will take this line and that we stop selling the right to take benefits at 55 as a reason to transfer or maintain a pension pot.

This messy legislation makes me want to turn the clock back ten years , before the freedoms came along, when at least we knew we hadn’t the faintest hope of saving enough to stop work at 55, let alone at 50. Legislation is now being enacted to protect us against pension liberation but  people liberate their retirement savings because they are ignorant of what they’ve got and confused by how to use it .

Tweaking tax rules is not the answer, restoring confidence in “pensions” is.

Until we have a proper pension policy where people understand there is nothing normal about stopping work in your mid fifties and that there is no generally available pension at such an age – we will make choices for people preparing for retirement ever more difficult.

My thanks to Gareth James, (@sippyslicker) for taking time out of his day to explain the legislation to me. Thanks to AJ Bell for employing him!