The Finance Act 2022, which received Royal Assent earlier this year, contains the legislation to facilitate the increase in the normal minimum pension age (NMPA) from 55 to 57 with effect from 6 April 2028.
Note that, the increase doesn’t apply to members of a ‘uniformed services pension scheme’ e.g. members of the police force, fire service and armed forces pension schemes.
The NMPA is normally the age at which benefits can be taken from a registered pension scheme without incurring an unauthorised payments tax charge, unless benefits are being taken on the grounds of ill health, or the member had a right on 5 April 2006 to take benefits before the NMPA.
The legislation contains details of the related protection regime to cover individuals who held rights under a registered pension scheme (that isn’t a uniformed services pension scheme) on 4 November 2021, and who don’t benefit from a protected pension age because of a right they held on 5 April 2006. Post 5 April 2028, the ability to take benefits before age 57, but not earlier than 55, will be possible provided the ‘entitlement condition’ or ‘block transfer condition’ is met.
Members of pension schemes with a protected pension age of less than 55 won’t see any change in respect of their current protected pension ages. Also, taking benefits early on the grounds of ill health will still be possible.
The entitlement condition is as follows:
- immediately before 4 November 2021 the member had an actual or prospective right under the pension scheme to any benefit from an age of less than 57,
- the rules of the pension scheme on 11 February 2021 included provision conferring such a right on some or all of the persons who were then members of the pension scheme, and
- the member either had such a right under the scheme on 11 February 2021 or would have had such a right had the member been a member of the scheme on that date.
Where a transfer took place on or after 4 November 2021 in respect of a request made before that date, and that transfer would, if completed before that date, have resulted in the member having an actual or prospective right under a pension scheme to any benefit from the age of less than 57 immediately before that date, the member is treated as having that right under that scheme at that time.
The block transfer condition
The block transfer condition is met where the individual is a member of a pension scheme as the result of a ‘block transfer’ from a pension scheme in relation to which the entitlement condition was met. Therefore, an individual transferring from a scheme under which the entitlement condition is met, or is met due to a previous block transfer, will enjoy the same protection under the receiving scheme, provided the transfer meets the necessary block transfer conditions. The protection will extend to all the individual’s rights under the receiving scheme including any other pension rights under the scheme not generated by the block transfer.
The definition of a block transfer differs from that relating to scheme specific lump sum protection and protected pension ages from scheme rights existing before 6 April 2006, in that there is no requirement for all benefits under the scheme to be taken at the same time. Neither does the requirement for the individual not to have been a member of the receiving scheme for more than 12 months before transfer apply.
Rights that are protected by virtue of the entitlement condition or block transfer condition, that are transferred, and the transfer is not block transfer, will continue to enjoy protection under the receiving scheme. If the entitlement condition or block transfer condition applies to the individual under the receiving scheme, then all the rights in respect of the individual under the receiving scheme will be protected. If it doesn’t, then the transferred rights will need to be ring-fenced.
It appears that the legislation addresses the transfer issues raised following the original consultation document, published in February 2021, in that individuals will be able to keep their protected pension age on transfer, which seems sensible to prevent the loss of a protected pension age outweighing other perfectly valid reasons for transferring.
For many individuals and their advisers, whether schemes meet the entitlement condition will be at the forefront of their thoughts, especially if being able to access benefits prior to age 57 is a requirement.
It’s likely that many schemes have sought legal advice, or are in the process of doing so, as to whether their rules are framed in such a way as to confer a right to take benefits before age 57. Because of the way the entitlement condition is worded there is no scope for schemes to take remedial action. Government guidance on what constituted such a right was limited to say the least. Where the rules expressly state that benefits can be drawn from 55, that would amount to such a right. Conversely, where the rules refer to the NMPA or its underlying legislation (e.g. permitting benefits to be taken from the lowest age consistent with the Finance Act 2004 regime) that would not confer such a right. The Government acknowledged that some scheme rules may be more nuanced, therefore necessitating the need for legal advice about the effects of specific drafting.