In most cases changes to UK pensions legislation can happen slowly and with plenty of warning, this is one of those cases, meaning every person and every pension scheme can be prepared for the change. So, exactly what’s happening.
The UK is increasing the normal minimum pension age to 57
The normal minimum pension age, (NMPA) is the age at which most pension savers can start to access their pension savings. Since the introduction of the NMPA it has broadly increased in line with the state pension age, generally being around 10 years below the state pension age.
In 2014, following the consultation on ‘Freedom and Choice in Pensions’, the UK government announced it would increase the normal minimum pension age to 57 in 2028. There is now draft legislation stating that on the 6 April 2028 the NMPA will rise to 57. The key points of the current legislation are:
- If you are already in a scheme that has a NMPA of 55 (or earlier) at 4 November 2021 then you can keep that NMPA
- If you establish a new plan after 4 November 2021 then your new plan will have a NMPA of 57 as at 6 April 2028 (regardless of whether the funds coming into your new scheme are transfers in from a scheme with an earlier NMPA)
So, what does this mean for members of pension schemes in the UK and members of Qualifying Recognised Overseas Pension Schemes (QROPS)?
- Members who were in a scheme prior to 4th November 2021 can take benefits when they turn 55, regardless of their birth date
- Members who join the scheme after 4th November 2021 and turn 55 before 6th April 2028 (i.e. birthdate prior to 6/4/1973), can take benefits when they turn 55, but if they still have benefits to take at 6 April 2028, they will need to wait until they reach age 57 before they would be able to do so.
- Members who join the scheme after 4th November 2021 and turn 55 on or after 6th April 2028 (i.e. birthdate after 5/4/1973) will not be entitled to benefits until they turn 57.
Case study 1: Already transferred to a QROPS previously
As at 4 November 2021 Frank is 47 years old and transferred his UK pension to New Zealand in 2017. Frank intends at the age of 55 to withdraw a portion of his pension to pay down the mortgage on his family home. Recently, due to poor performance, Frank has been considering his investment options and is thinking about moving out of his existing QROPS and into another QROPS. If Frank transfers to his new then he will have to wait until age 57 to withdraw some of his funds to pay down his mortgage. This is because he will be joining a new scheme and does not turn 55 prior to 6 April 2028, so in that new scheme he will have a new minimum pension age of 57.
Case study 2: Yet to transfer to NZ
Mary moved New Zealand in December 2020 just after her 50th birthday, she is yet to move her pension here because she’s still in her 4-year tax free window for transferring. Mary thought she’d leave her pension in the UK until she was closer to the end of her tax-free period in December 2024.
At that point she’d also be closer to age 55 and closer to be able to take out a portion of the funds to buy a new car. Under the proposed changes Mary could transfer to a New Zealand scheme withdraw some of the funds at age 55 (this is because she will turn 55 prior to 6 April 2028).
The implications for choosing a QROPS scheme
Most New Zealand QROPS will refer to the normal minimum pension age in their Trust Deeds. They might do this by directly stating an age to access the funds (say 55) or by referring to the NMPA (as a concept). How they do this could prove important for current and future members of the schemes particularly those born after 6 April 1971. Ideally, the Trust Deeds will in the future explicitly state that for members that joined prior to 4 November 2021 the NMPA is 55 years old and for members that joined the scheme after that date the NMPA will be 57, unless they turn 55 prior to 5 April 2028 in which case it will be 55 up until 5 April 2028 and 57 thereafter that date.
If access to your pension funds is important to you from age 55, then these changes should be factored into your decisions. We recommend that you seek appropriate and independent advice on how to understand these changes and how they’ll affect you.
