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Changes to normal minimum pension age – impact on transfers

  • United Kingdom
  • Pensions


What’s happening?

Normal minimum pension age (the earliest age a member can normally take benefits from a registered pension scheme) will rise from age 55 to age 57 on 6 April 2028. 

The legislation to make this change will be set out in the Finance Act 2022 and has now been issued in draft. It contains provisions that will allow members who already have a right in their scheme to retire before age 57 to retain that right on a transfer (referred to below as a "protected pension age").

Even though the legislation will not be enacted until next year and the change in normal minimum pension age does not come into effect until April 2028, the provisions protecting minimum pension ages on transfer will effectively apply from 4 November 2021 so trustees and administrators need to be aware of them now.

Protected pension ages – the detail

When the Finance 2004 was introduced in 2006, the minimum age at which members could take benefits was generally age 50. This was increased to 55 in 2010 but there were complex provisions which allowed members who already had a right to a lower retirement age to retain it and the new legislation will not change the circumstances in which these members can retain that lower minimum pension age.

The Government made it clear in its consultation on increasing the minimum pension age to 57 that it would introduce legislation to protect existing rights to retire at 55 and the draft legislation sets out the detail of this protection. Whilst there are some similarities with the existing protections, the conditions are not identical and scheme rules will need to be considered carefully.

To benefit from a protected pension age of less than 57 from April 2028, members will need to satisfy an initial “entitlement condition” and to retain protection on any subsequent transfer, they will also need to meet the conditions for either a block transfer or individual transfer. 

Entitlement condition: This condition is satisfied where:

  • a member had an actual or prospective right to retire earlier than 57 prior to 4 November 2021. HMRC has issued guidance in relation to existing protected pension ages saying the “right” must be unconditional which means that it cannot be subject to employer or trustee consent. HMRC has also said that they will issue further guidance in the context of the new provisions
  • the rules of the relevant scheme contained that right on 11 February 2021 and
  • either the member had the right under the scheme on 11 February 2021 or would have done had they been a member of the scheme on that date

Where a member requested a transfer to a scheme prior to 4 November 2021 but the transfer was not completed until after that date, they will be treated as being a member of the scheme prior to 4 November for the purposes of this condition. In this context, a member “requests” a transfer if they have made a valid application for a transfer value. 

Block transfer condition: Where a “block transfer” is made in respect of a member who met the entitlement condition in the transferring scheme, the member will be entitled to a protected pension age in the receiving scheme. A block transfer for these purposes must include all of the benefits under the transferring scheme for at least 2 members. 

Where the block transfer condition applies, the protected pension age will apply in respect of all of a member’s benefits in the receiving scheme.

Individual transfers: If the block transfer condition and/or the entitlement condition apply to a member and they request a transfer to another registered scheme on or after 4 November 2021, they will be able to take the sums and assets transferred and any amounts derived from them from the protected pension age they had in the transferring scheme. However, any rights which they subsequently accrue in the receiving scheme will not benefit from a protected pension age. This means that the transfer value effectively needs to be ring-fenced. 

Both the block transfer and individual transfer condition can apply to subsequent transfers. 

What next?

There are a number of steps that trustees and administrators should be taking now in relation to the changes in normal minimum pension age:

  • check whether any members will have an entitlement to this new protected pension age under scheme rules
  • ensure receiving schemes are notified about any protected pension ages
  • consider what to do about transfers-in where a member has a protected pension age and whether the transfer value will need to be ring-fenced. This is an important administrative point for the receiving scheme because the protected pension age will apply only to the transferred-in benefits (plus investment return) and will not apply to future benefits built up after the transfer date

Ensure that where members have a protected pension age and seek a transfer, they are made aware of this and told to seek advice about the impact that a transfer may have on them.