The Association of British Insurers has called on the government to scrap its “complicated”, “arbitrary” and “confusing” plans to raise the normal minimum pension age “until something fit for purpose” has been developed.
In a blog post published on Tuesday, coinciding with the end of a consultation into raising the normal minimum pension age to 57 from 55 by 2028, former ABI tax adviser Dan Gallon criticised the government’s plans, saying they were “too complicated and will create too much confusion for the tens of millions of people affected”.
They will "simply be [unable] to answer the question ‘at what age will I be able to access my pension’”, he said.
The raise in the normal minimum pension age is intended to align with the increase in the state pension age. But while the latter is being implemented in a clear and simple way, the former "is neither simple nor fair and it is going to be incredibly complicated”, Gallon noted.
We urge the government to rethink their approach and make it much simpler for consumers. Being able to access their pension at 57 from 2028 for the vast majority of people is clear, reduces complexity and poor outcomes, and simplifies planning for retirement
Yvonne Braun, ABI
New rules will be highly confusing
One of the principal causes of confusion arises from the fact that protections are in place guaranteeing some scheme members access to their pensions at the current normal minimum pension age of 55, as long as the scheme they are in has this written into its rules.
Draft legislation will give individuals an opportunity to join a pension scheme by April 5 2023, where the scheme rules on February 11 2023 already state that the member has an unqualified right to take pension benefits below the age of 57.
Pensions Expert reported in July on the Treasury’s decision to extend these protections after parts of the pensions industry criticised the initial proposal that members should keep their protected pension age on a block transfer, but not in individual transfers.
HM Revenue & Customs has "indicated that where pension schemes rules include a reference to benefits being taken from age 55, this would be an unqualified right; however, a reference to taking benefits from ‘normal minimum pension age’ would not meet the requirement,” Gallon wrote.
“There will also be a ring-fencing where funds in a pot with protection are transferred to a new pension scheme, with funds transferred (and any investment income on those funds only) accessible at 55 whereas any new payments in would only be accessible at 57.”
As a result, he said, it would not be clear to many individuals whether they can access a particular pension pot at 55 or 57, while taking advice from independent financial advisers and guidance from pension providers and the Money and Pensions Service will be much more difficult, as they will often be unable to provide “a clear recommendation either due to uncertainty of the rules and future requirements or due to regulatory requirements on offering advice”.
Scheme rules may also not “fit neatly” into HMRC guidance, meaning a great deal may depend on court cases or Ombudsman decisions, which will take a long time to arrive.
Gallon also warned that the move, as presently formulated, would conflict with other government priorities, for instance the rationalisation of small pots, which may be discouraged should one of those pots have a protected pension age.
'A hugely complex mess'
The problems extend to the transition to the new regime, since it will create a window to lock in the minimum pension age of 55.
“This could encourage transfers into schemes that have this right to access at 55 regardless of whether they are otherwise the best scheme," leaving out considerations such as charges or investment availability, Gallon noted.
“Some individuals who have transferred in the last few months will have moved from a ‘55’ scheme to a ‘normal pension minimum age’ scheme, without understanding the implications of doing so, losing out as a result due to the government changing proposals since the original consultation was announced,” he continued.
To sum up the problem, he posed the question: At what age will I be able to access my pension?
“Currently the answer is usually clear-cut – at 55. In the future, it appears the answer will be a muddle of: 55 for this pot, 57 for that pot, it’s not clear for a third pot due to the terms and conditions not falling into HMRC guidance neatly and I have not been able to find out the terms and conditions of my fourth pot so have no idea when I can access those benefits.”
His call on the government to “rethink” the proposals was backed by the ABI.
Yvonne Braun, director of long-term savings policy at the industry body, said: “People are living and working for longer, so it is right the minimum age you can access your pension will rise to 57 in seven years’ time, in step with the state pension age rising to 67.
“Unfortunately, the government’s proposed implementation maximises the complexity of this change and would create enormous confusion for pension savers.”
Millions would still be able to access their pension at 55, “making the change pointless,” she continued. Additionally, the existence of multiple pension pots will complicate retirement planning.
“The ability to access a protected pension age of 55 may drive advisers to recommend switching to their clients, creating arbitrary market distortions. Savers may also leave employer schemes with a NMPA of 57 to access their pension earlier elsewhere, losing the employer contribution.”
“We urge the government to rethink their approach and make it much simpler for consumers. Being able to access their pension at 57 from 2028 for the vast majority of people is clear, reduces complexity and poor outcomes, and simplifies planning for retirement,” she said.
Andrew Tully, technical director at Canada Life, concurred, calling the process “a hugely complex mess”.
Savers given opportunity to lock in minimum pension age at 55
The government has given savers a way to avoid the minimum pension age increase in 2028, as new rules will allow individuals to keep their protected pension age if they transfer their pension.
“If the government believes there are genuine reasons to increase the normal pension minimum age to 57 then that should apply to most people, although there is an argument for an exception for ‘uniformed’ pension schemes,” he said.
“This draft legislation gives wider protection, and on a completely random basis rather than being targeted at a specific cohort or age group. We even have the bizarre scenario that a child could take out a pension before 2023 (in a suitable scheme) and protect the ability to take benefits at age 55 in the 2070s. That is nonsensical.”
He concluded: “The normal pension minimum age should either be moved to 57 for all, with very limited exceptions, or the government should retain age 55 and rethink its entire policy around minimum pension ages.”
