Policy paper

Increasing Normal Minimum Pension Age

Published 4 November 2021

Who is likely to be affected

Individual members of registered pension schemes who do not have a protected pension age but take scheme benefits before age 57 after 5 April 2028 or those who would like to have taken a benefit but will not be able to. However, members of the firefighters, police and armed forces public service schemes will not be affected by this increase.

Scheme administrators of registered pension schemes will need to modify their systems to accommodate for these changes.

General description of the measure

Following its announcement in 2014, this measure increases the normal minimum pension age (NMPA), which is the minimum age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge unless they are retiring due to ill-health, from age 55 to 57 in April 2028.

The government consulted on the implementation of the increase and a proposed framework of protections for pension savers who already have a right to take their pension at a pre-existing pension age on 11 February 2021. The consultation closed on 22 April 2021 and received 142 responses.

Policy objective

This measure supports the government’s fuller working lives agenda and has indirect benefits to the economy through increased labour market participation, while also helping to ensure pension savings provide for later life.

Background to the measure

The NMPA was introduced in 2006 and was increased from age 50 to age 55 in 2010. In 2014, following the consultation on ‘Freedom and Choice in Pensions’, the government announced it would increase the NMPA to age 57 in 2028 to coincide with the rise of state pension age to 67.

Following the consultation on a proposed framework of protections this measure will legislate for the increase in NMPA.

Detailed proposal

Operative date

The increase in NMPA will have effect on and after 6 April 2028.

Current law

Registered pension schemes must not normally pay any benefits to members until they reach NMPA. Sections 165(1) and 279(1) of the Finance Act 2004 provides that from 6 April 2010, the NMPA is age 55 (before 6 April 2010 it was age 50).

Registered pension schemes are also not permitted to have a normal pension age lower than age 55 and this applies equally to individuals in occupations that usually retire before 55 (for example, professional sports people). Although the legislation provides the minimum age at which benefits can be taken, the rules of a scheme will state what benefits can be taken and the age at which they can be taken from. The age at which they can be taken from can be higher than NMPA.

If a registered pension scheme does pay benefits to a member before the NMPA unauthorised payment charge liabilities may arise unless the benefits are paid on ill-health grounds, or the member had a right on 5 April 2006 to take benefits before the NMPA. An individual may have a right to take benefits before the NMPA where this is not dependent on anything else or somehow qualified – for example requiring employer or trustee consent. Where certain conditions are met these individuals may take their benefits earlier than age 55 without a tax charge. This is known as the individual’s protected pension age.

If an individual has a protected pension age, 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 protected pension age is less than 50 and benefits are taken before NMPA. This means, subject to that exception that when taking benefits from the relevant registered pension scheme, the tax rules apply to the member based on their protected pension age rather than the prevailing NMPA.

Proposed revisions

Legislation will be introduced in Finance Bill 2021-22 to provide a framework of protections and increase the NMPA from age 55 to 57.

The legislation introduces an increase in the NMPA to 57 from 6 April 2028. Following publication of the draft legislation, the government carefully considered further representations and concerns it received from industry regarding the length of the window for individuals to join a protected scheme. The legislation will now protect members of registered pension schemes who before 4 November 2021 have a right to take their entitlement to benefit under those schemes at or before the existing NMPA. The legislation exempts members of the firefighters, police and armed forces public service schemes and for protected members it reduces the restrictions on retaining a protected pension age following a block or individual transfer.

Summary of impacts

Exchequer impact (£m)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
—	—	—	—	—	—

This measure is not expected to have an Exchequer impact within the scorecard period. Impacts from the implementation date onwards will be subject to scrutiny by the Office for Budget Responsibility and will be set out at a future fiscal event.

Economic impact

This measure does not come into effect within the forecast period.

The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.

Impact on individuals, households and families

This measure will impact individuals approaching retirement age who will be affected by the two-year increase in the NMPA.

Customer experience is expected to remain broadly the same as this measure does not significantly alter how individuals interact with HMRC.

This measure is not expected to have an impact on family formation, stability or breakdown.

Equalities impacts

This measure will impact men and women equally as the NMPA is the same for both genders. We do not have the data to identify if more men than women will be impacted. Whether individuals are affected will depend on the circumstances of their scheme.

This measure will impact older individuals more than younger ones. This is because it is raising the pension age and those closer to this age will be immediately impacted more than those who are 10+ years away as they will have ample time to adjust and financially plan.

It is not anticipated that there will be any particular impact on other groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on businesses administering registered pension schemes. One-off costs for businesses will include familiarisation with the changes and could also include updating systems to reflect changes to the normal minimum pension age. Additional one-off costs could also include training staff on changes, legal and consultation advice on the provision of a protected pension age and managing a potential communication increase from customers due to general queries relating to the change and requests to transfer funds.

There are not expected to be any continuing costs.

Customer experience is expected to stay broadly the same as this measure does not significantly alter how pension schemes interact with HMRC.

This measure is not expected to impact civil society organisations.

Operational impact (£m) (HMRC or other)

Minimal changes will need to be made to the online guidance on gov.uk. This will be handled as part of the routine end of year updates at nil cost.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact Steve Darling on Telephone: 03000 512336 or email: pensions.policy@hmrc.gov.uk.