Normal Minimum Pension Age: Recap and Review
What is NMPA?
Normal minimum pension age (“NMPA”) is the youngest age at which members can usually access their benefits under a registered pension scheme, without incurring an unauthorised payments tax charge. In 2014, the Government announced that from April 2028, the NMPA would increase from 55 to 57 to coincide with the rise of state pension age to 67. HMRC’s proposals on implementing this change were outlined in a policy paper and draft legislation published on 20 July 2021. In November 2021, the Government published the Finance (No. 2) Bill 2021-22, which includes, amongst other things, the draft legislation for the increase in NMPA. The Bill is currently progressing through Parliament.
What is a protected pension age?
Protected pension age (“PPA”) is a concept that was introduced to protect individuals who had been planning their finances and retirement on the basis of the previous NMPA and therefore, would be adversely impacted by its increase.
If an individual has a PPA, the tax rules provide that it replaces the prevailing NMPA for all purposes of the pensions tax legislation except for the lifetime allowance reduction that may apply where the PPA is less than 50 and benefits are taken before NMPA. Subject to that exception, when taking benefits from the relevant registered pension scheme, the tax rules apply to the member based on their PPA rather than the prevailing NMPA.
To claim a PPA, an individual has to have had, on 5 April 2006, an unqualified right to take benefits before NMPA. An unqualified right broadly translates to being able to take benefits without the consent of either the trustees or the employer. The individual must also meet other criteria specified in the Finance Act 2004 including that they had the right under the scheme rules as they stood on 10 December 2003, or they acquired the right in accordance with the schemes rules as they stood on 10 December 2003 upon joining the scheme after that date.
The Finance Bill will introduce a new PPA for anyone who, on or before 3 November 2021, was a member of a scheme whose rules, as at 11 February 2021, gave them an unqualified right to take their benefits before age 57.
Originally, the draft legislation proposed in July provided for a 'window of opportunity' for individuals to obtain a PPA where the scheme rules on 11 February 2021 already conferred an unqualified right to take pension benefits below age 57 and the member joined that scheme by 5 April 2023. However, the Finance Bill has amended this, so the window closed on 3 November 2021.
Note that a member will gain a PPA if the member transfers to a scheme on or after 4 November 2021 where the request to transfer was made before 4 November 2021 and had the transfer been made then, the member would have been eligible for the new PPA.
Different restrictions on retaining a PPA following a block or individual transfer will apply to members with a PPA under the new regime. For example, it is currently envisaged that on an individual transfer, those transferred benefits which gave rise to a PPA must be “ring-fenced” in the receiving scheme, a mechanism that could give rise to some complexity from an administration perspective. It is also envisaged that benefits transferred into a scheme in relation to which the member has a PPA will benefit from the same PPA, notwithstanding that they did not before the transfer.
What to do next…
We recommend that trustees:
- Check their scheme rules: establish what the NMPA is for each category of member and relay this information to the members in a clear and informative way once the legislation is finalised.
- Seek legal advice: ensure that any queries regarding the incoming changes have been addressed, consider whether any amendments to the scheme rules are necessary and, if so, ensure they are correctly implemented.
- Deal with transfers in: confirm the scheme’s position with respect to transfers in and ensure administration processes with respect to such transfers are set up.