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Stop more confusion for pension savers: ABI calls for simplicity when the Government increases pension access age

The Association of British Insurers (ABI) is calling for a simpler approach when the Government delivers its planned increase of the age that you can first access your pension from 55 to 57. The proposals set out in a consultation closing today will cause enormous confusion for pension savers navigating the already complicated UK pension system. For clarity for savers, the ABI is calling for everyone to be able to access their private pension at 57 years old with some limited exceptions.

The age that you can usually first access a private pension without tax penalties is called the Normal Minimum Pension Age (NMPA). It is currently age 55 but in 2014 Government announced it will rise to 57 in 2028 to keep in step with the rise in the State Pension Age. There are currently some limited exceptions where you can access your pension earlier. This is called a protected pension age.

The proposals set out in the Government consultation would extend a protected pension age of 55 to millions of people with Defined Contribution pension schemes who currently have a scheme where 55 is written into the scheme rules. This would make the change to the NMPA pointless.

Unlike for the state pension, there would also no longer be a universal answer to the question what the normal minimum pension age is, making it harder to plan. Most pension savers of this generation will have multiple pots, meaning they could easily have different ages at which they can access their different pensions, adding to the confusion.

The rules would also create market distortions as consumers would have an incentive to transfer to a scheme with a protected pension age of 55 and advisers could feel compelled to recommend such transfers. The policy would also carry the risk that customers may opt out of workplace pensions to gain a protected pension age of 55 elsewhere, losing out on employer contributions, which would lead to poor outcomes. The effects of the policy would be felt for decades to come, with savers now in their 20s gaining access to their pensions at age 55 in the 2050s.

The ABI is calling for a simpler approach, similar to 2010, when the NMPA was increased from 50 to 55. In 2010, it was clear that only a limited group of savers would retain the right to access their pension from 50, based on their employment. The ABI proposes that the NMPA should be 57 for all, except limited protected pension ages for those who already have them, particularly some public service workers such as uniformed services, and those who already had a protected pension age from 2010.

Yvonne Braun, Director of Long-Term Savings Policy at the Association of British Insurers said:

YvonneBraun500x500.jpg“People are living and working for longer so it is right the minimum age you can access your pension will rise to 57 in 7 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 age 55, making the change pointless. Most savers will also have multiple pots at different ages, complicating their 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 Normal Minimum Pension Age 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.”


Notes for Editors  

What are the issues with the current proposals set out in the consultation?

The issues around the proposed protections include:

  • Confusion for individuals – it will often not be apparent whether a pension pot has a protected NMPA of 55 as this will depend on the wording of the pension scheme rules which may be ambiguous.
  • Complexity of messaging from financial advisers, pension providers and MAPS – they will need to raise the issues when discussing potential transfers with individuals, often without being able to provide a clear recommendation either due to uncertainty of the rules and future requirements or due to regulatory requirements on offering advice.
  • Interpretation of scheme rules, with many not falling neatly into the cases suggested by HMRC, e.g.  if the wording includes ‘normal minimum pension age, which is 55’, or where there is a separate contractual right to access at 55 which is not mentioned in the pension scheme rules.
  • Uncertainty for decades to come as a result of interpretation difficulties. Someone in an auto-enrolment scheme now aged 22 may want to access their pension at 55 in 2054. Possible court cases or ombudsman referrals may not happen until then.
  • Tracking of ring-fenced components of pension pots for decades will add significant additional information for individuals to grapple with and cost into the pensions value chain e.g. IFAs will need to consider what is ring-fenced and benefiting from protection and what is not when making recommendations.
  • Conflict with other Government priorities
    • Rationalisation of small pots may be discouraged where one of those pots has a protected pension age.
    • Pensions dashboards implementation timelines and approach.
    • Wake-up packs at set points ahead of the NMPA.

For more information contact the Press Office

Last updated 14/09/2021