Protection from the increase to the New Normal Minimum Pension Age in 2028

When a member can take their pension benefits before the New Normal Minimum Pension Age of 57 in 2028?

Some members of pension schemes can take their benefits before age 50 or 55, which is covered in our article Protected early pension age – 2006 and 2010 protections. This article will cover those that have protection from the increase to the Normal Minimum Pension Age (NMPA) from 55 to 57 in 2028.

Protection from the new NMPA in 2028 – what do you need to know?

• The increase will not apply to members of the uniformed services pensions schemes.
  
  
• Members must have had an unqualified right to take benefits between ages 55 and 57 in their pension scheme as at 4 November 2021.
  
  
• Protection from the new NMPA can be lost in some circumstances.
  
  
• Protection can be retained in the event of a transfer, although there are differences for block and individual transfers.
  

Why is there protection from the new NMPA in 2028?

In the Finance Act 2022 the final framework for the increasing the Normal Minimum Pension Age was introduced. From 6 April 2028 this will increase to age 57 and coincides with the rise in state pension age to 67 as of that date (there had been a previous government intention to link NMPA to 10 years below state pension age, but this is not proceeding at this time). 

This increase does not apply to members of the “uniformed services pensions schemes” such as firefighters, police and the armed forces. 

This also created a new protection regime for members of schemes that had an unqualified right to take benefits between the ages of 55 and 57. The rules are broadly similar to the category 3 members as detailed in our article Protected early pension age – 2006 and 2010 protections, but with the addition of individual transfers (i.e. non block transfers) retaining a degree of protection.

Unqualified right to take benefits between ages 55 and 57

To meet the condition of having an unqualified right to take benefits before the new NMPA the following conditions must be met;

• the member must have had an actual or prospective right immediately before 4 November to take a pension and / or a lump sum before the age of 57
  
  
• the right must be unqualified. This means that to take benefits at this early age, no other party (eg trustees and / or employer) needs to give their consent
  
  
• the right must have been set out in the scheme rules on 11 February 2021
  
  
• the member must have had that right on 11 February 2021 or would have acquired the right had they been a member of the scheme on 11 February 2021

If any condition is not met, there will be no protection from the new NMPA and members will only be able to take their pension benefits from age 57 from 6 April 2028.

Block transfers

In respect of protection from the new NMPA, protection will remain (and the scheme will pick up the protected age for existing and future contributions) in the event of a block transfer. A transfer is a block transfer if (these requirements are known under the legislation as the ‘entitlement condition):

• it involves the transfer in a single transaction of all the sums and assets held for the purposes of (or representing accrued rights under), the arrangements under the transferring pension scheme, which relate to the member and at least one other member of that pension scheme
  
  
• it does not matter if the member has already been a member of the pension scheme to which the block transfer is made before the date of the transfer ― the 12-month ‘permitted membership period’ is not a requirement
  
  
• Unlike the previous block transfer rules, there is no requirement for all the members rights to come into payment at the same time

This applies to transfers from 4 November 2021 (a block transfer carried out pre 4 November 2021 will retain this protection too)

Individual transfers for those with protection from the new Normal Minimum Pension Age of 57

A new form of transfer was introduced with effect from 4 November 2021 for the new Normal Minimum Pension Age of 57, namely individual transfers that can retain a protected age for the transfer. However, this protection will only apply to the portion transferred to the new scheme, and would not confer the protected age on any of the other benefits in the scheme that is being transferred into. Effectively this will ring fence the protected pension age around the transferred benefits.

By definition any individual transfers before 4 November 2021 from schemes that did have an unqualified right to take benefits before the new NMPA would not retain this protection.

For individual transfers, the member can transfer their pension rights at arrangement level and retain their 2028 protected pension age in the receiving scheme. There is no requirement for the member to have a protected pension age already in the receiving scheme.

However, the 2028 protected pension age would not apply to other sums or assets already held in the receiving scheme, or that are subsequently put into the scheme either by pension contribution or transfer. The aim is to protect the transferred pension rights, not enhance them, so the protected transferred rights will require ring-fencing in the receiving scheme.

The 2028 protected pension age should also be retained by the member on subsequent relevant transfers. However, the protected pension age would not apply to other sums or assets held already in the receiving scheme.

The 2028 protection provisions will also operate in the same way as it does now, where the transfer is from a registered pension scheme to a qualifying recognised overseas pension scheme (QROPS). So, if the individual has a 2028 protected pension age and there is a block or individual transfer, then an individual would take their protection with them to the QROPS.

However, if there was not a protected pension age previously, then payments before age 57 after 5 April 2028 will result in an unauthorised payment charge, but only if they are in scope of the member payment charges.

Pensions in Payment

Unlike previous protected ages, there is no requirement for any further legislation to allow a transfer of pension in payment, as by definition an individual transfer of a pension in payment can be done.

Further issue to be resolved

The Government are aware that there could be a recurrence of the issue when the NMPA increased from 50 to 55 in 2010 that a member may put some of their pensions into payment whilst over the current NMPA before 2028 but then be unable to put further pension into payment as they are not 57 when the new NMPA comes into effect on 6 April 2028.

Therefore there may be further legislation (or not) which will give clarity for those that could be in that situation.