The Normal Minimum Pension Age (NMPA) will rise from age 55 to 57 from 6 April 2028. This change will impact those born after 6 April 1971 (unless they have a protected pension age) and means they will not be able to access their pension savings until 57.
Those born before 6 April 1971 will be unaffected because they will turn 57 before the change on 6 April 2028. Those born after 6 April 1971 and before 6 April 1973 will have a window of opportunity from their 55th birthday to 5 April 2028 to start to access their pension savings before the NMPA increases to 57. If they don't start to access any part of their pension during this period, they will need to wait until their 57th birthday to do so.
Protected Pension Age (PPA)
A new set of protections has been introduced to allow some individuals to keep a minimum pension age of 55 where their scheme rules gave them a right to do so. To benefit from the new PPA from 6 April 2028:
- individuals had to be a member of a pension scheme on or before 3 November 2021 and
- the scheme rules, as at 11 February 2021, had to provide members with an unqualified right to take their benefits between age 55 and 57.
Most pension schemes are likely to have referred to NMPA (as defined by Finance Act 2004) as being the earliest age individuals can access their pension savings. As a result, pension schemes that provide their members with an unqualified right to access before age 57 are likely to be in the minority.
Individuals will still be able to access their pension savings before NMPA on the grounds of ill-health.
What this could mean for your clients
Unless your client has a protected pension age, the earliest age at which they can start to access their pension savings will increase to age 57 on 6 April 2028.
Individuals who can afford to retire at age 55 may have savings in other products such as ISAs, bonds and collectives. Accessing these first in a tax efficient way will make the most of tax allowances and lower tax bands as well as potentially reducing their estate for inheritance tax (IHT).
This even makes sense beyond age 57 because, in most cases, pension savings are protected from IHT, income tax and capital gains tax (CGT) and on death before 75, beneficiaries receive the death benefit tax free.
For less affluent individuals, other savings may also be used to bridge the gap between 55 and 57. But before drawing on pension savings, it’s worth remembering that they'll have to wait an extra two years before claiming their State Pension at 67. For some, this may call into question the affordability of early retirement.
There may be some clients who turn 55 in 2027, start to access under phased drawdown and then have to stop any further vesting from 6 April 2028 because they're below the new NMPA of 57 at that time. This may need to be planned for by either making sure they designate enough into drawdown before April 2028 to cover them for the next year, or bridge the gap with other savings.
Schemes with protected pension ages
An individual has an “unqualified right” to access their pension savings if they do not need anyone’s consent to do so at a specified age e.g. 55. The individual does not have an “unqualified right” to access their pension savings if the scheme rules state consent is required e.g. from trustees, employer or scheme administrator. Many schemes will have scheme rules which referred to NMPA as being the earliest age pension savings can be accessed in which case no PPA will apply.
Clients in schemes with existing PPAs, such as pre-A-Day early retirement ages for specific occupations (e.g. military personnel) or those who retained an early minimum pension age in 2010 when the NMPA changed from 50 to 55, will not be affected by this latest increase.
Transfers from schemes with a protected pension age
Individuals who have an unqualified right to access their pension savings before 57 can transfer to a new provider and maintain that right in their new plan, although what is protected depends on the type of transfer:
- A block (buddy) transfer – this is where more than one member of a scheme transfers at the same time to the same receiving scheme. In this instance, they will maintain the right to access at the PPA on the entire plan, so on the funds transferred and on any new monies that are paid into that new scheme.
- An individual transfer – this will also maintain the PPA, but only on the funds transferred (these will need to be ring-fenced in the receiving scheme to ensure the PPA only applies to the transferred amount and not to any new savings made to the new plan - the client would have to wait until 57 to access any new savings).
Currently, a condition of accessing pension savings with a PPA is that the individual must take everything at the same time. This requirement won't apply to this new protection. Individuals should therefore be able to access their pension savings flexibly without losing their PPA.
A member of an occupational scheme does not need to stop working for the sponsoring employer to benefit from a PPA in that scheme arising from the 6 April 2028 NMPA increase.
Your clients will be unaffected by the NMPA increase in 2028 unless they have definite plans to start to access at age 55 and their only savings are in pensions.
For those with other forms of saving, it may be more efficient to look to these to provide for early retirement.
Individuals in a scheme with a PPA of 55 can transfer elsewhere and retain their right to access at the earlier age, at least on the amount transferred, they are not limited to remaining where they are by the PPA.