Coffey says state pension age 'will not be reviewed' in September
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Changes to the normal minimum pension age (NMPA) have been proposed and are set to come into effect in 2028. However, concerns are growing that an increase in the NMPA could cause confusion for Britons, as some people are looking at a longer wait to reach minimum pension age, while others will be protected.
The changes were announced in July and would mean an increase from age 55 up to 57 effective from April 6, 2028. But with some people being protected from the changes and maintaining the ability to access their pension at 55 under the current rules, there have been calls for a more simplified approach.
The Chancellor of the Exchequer Rishi Sunak will deliver the Autumn Budget on October 27. It could contain any number of changes which could impact current pensioners as well as those saving for a future retirement.
Tom Selby, head of retirement policy at AJ Bell had his say on the NMPA changes and whether they could be re-addressed at Budget.
He said: “The Treasury has got itself into a bit of a pickle over plans to increase the normal minimum pension age (NMPA) to 57 in 2028.
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“Rather than simply raise the NMPA for all, policymakers have proposed a complicated protection regime for those who had an ‘unqualified right’ to access their retirement pot before age 57 on 11th February 2021.
“People will have until April 5, 2023 to transfer to a scheme with an unqualified right and retain a lower NMPA.
“This will create the ludicrous scenario where savers could have two different minimum pension access ages within the scheme.
“Such complexity risks undermining various key Government initiatives, including pensions dashboards, and will be a gift to scammers who will take advantage of the inevitable confusion it will create.
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“The Budget might be the last opportunity for the Treasury to see sense and, at the very least, keep the NMPA rise out of the upcoming Finance Bill. This would give breathing room for a simpler, more sensible solution to be delivered.”
The changes have sparked worries that scammers could use the confusion surrounding the issue to catch out unsuspecting savers, as the new plans could add to the complexity of the pensions framework.
It appears that the changes could mean people end up with a single pension pot containing some funds which can be accessed from age 55, and another amount they can only draw on when they reach age 57.
There are also concerns that it could be easy for mistakes to be made when transferring schemes. If someone is confirmed as having a protected pension age of 55, when in fact this is a mistake and it should be 57, that person could get hit with a 55 percent unauthorised payment charge by HMRC if they then draw from their pension before they turn 57.
Another of the stranger elements of the protections included as part of the changes is that even a child could take advantage of the ability to secure a lower NMPA age of 55, providing they take out a pension by 2023.
Others believe that by bringing attention to the minimum pension age through tinkering with it, people could get the impression that they should be accessing their pension as soon as they reach the minimum age, when in reality, doing so may come with substantial risk and would not be right for everyone.
The Pensions Dashboard was introduced for the purpose of showing people the value of their pension income at whatever age they would like to retire, but following these changes, the simplicity of the platform could be undermined.
For example, some people may choose a retirement age of 55, but could then only draw some of their pension at that age, with the rest not being accessible until they turn 57. In that scenario, it is unclear how their forecasted income would be displayed on the Pensions Dashboard, as it is designed around the idea of people having just one retirement age.
The Government might require providers to use simpler annual statements going forward in another measure which may be introduced in an effort to simplify pensions and increase people’s understanding of them. But people could end up with two statements each year anyway if they can access some of their retirements at 55 and some at 57. This would defeat the objective of simplified statements.
People who have multiple pension pots could also run into problems, as they may lose track of them. Consolidating multiple pensions into one is an avenue which may be worth exploring for some, but issues could arise if providers are being made to combine different pots with different pension ages.
The reason for increasing the NMPA to 57 is to continue to keep it in line with life expectancy improvements, however, recent data has shown that life expectancy in the UK has fallen between 2018 and 2020.
The fall in life expectancy has led to calls for the state pension age, which is currently 66 for both men and women and is set to increase to 67 by 2028, to be reviewed at the Autumn Budget and potentially decreased.
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