Increasing the normal minimum pension age for Pensions Tax
Published 20 July 2021
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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 who now 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
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 2028.
A consultation 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. This was launched on 11 February 2021 via a Written Ministerial Statement (WMS) by the EST. The consultation closed on 22 April 2021 and received 142 responses.
Policy objective
This measure supports the government’s agenda around fuller working lives and has indirect benefits to the economy through increased labour market participation, while also helping to make sure pension savings provide for later life.
Background to the measure
The NMPA was introduced in 2006 and it 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. Tax legislation provides that from 6 April 2010 the NMPA is age 55 (before 6 April 2010 it was age 50). Sections 165(1) and 279(1) Finance Act 2004.
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. Paragraphs 21 to 23 Schedule 36 Finance Act 2004.
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
A consultation on the implementation of the increase to NMPA and a proposed framework of protections for pension savers who already have a right to take their pension at a pre-existing pension age concluded on 22 April 2021 and received over 145 responses.
Following the consultation, legislation will be introduced in Finance Bill 2021-22 regarding the framework of protections and the increase to the NMPA from age 55 to 57.
Summary of impacts
Exchequer impact (£million)
| 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 is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
This measure will impact individuals approaching retirement age who will be affected by the 2-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. 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 national minimum pension age. Additional one-off costs could also include training staff of changes, legal and consultation advice and managing a potential communication increase from customers.
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 (£million) (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, contact Steve Darling on Telephone: 03000 512336 or email: pensions.policy@hmrc.gov.uk.