HMRC confirms draft legislation around minimum pension age increase

Draft legislation has been issued by HMRC around the increase in the minimum pension age from 55 to 57.

The change is due to take place in April 2028 and today’s proposals are specifically around the framework for pension savers who have a right to take their pension at a younger age.

The new rules mean the normal minimum pension age will increase from 55 to 57 in 2028 –
in line with the increase in state pension age to 67 – while members of “uniformed pension schemes” including armed forces, police and fire services, will retain a normal minimum pension age of 55.

HMRC also confirmed that an individual member of a registered pension scheme, who on 5 April 2023 has a right to take benefits from an earlier age than 57 and the rules of the scheme on 11 February 2021 – the date of the original consultation – have a right to take benefits at an earlier age, can still retain the right to take benefits at age 55.

Commenting on the proposed changes, Canada Life technical director, Andrew Tully, said the confirmation will be “welcome” to individuals and advisers, and give time for appropriate planning over the next seven years.

“However, what should have been a simple process has turned into a hugely complex mess,” Tully warned. “The process to decide which individuals retain a right to an earlier pension age is completely arbitrary, being based on the specific wording within scheme rules, which may have been written many years ago.

“It also leaves open the possibility that people will hunt around for a scheme which gives them the right to take benefits at age 55 and transfer to that before 2023. So expect frantic transfer activity over the next few years as people look to secure age 55 as their minimum pension age, irrespective of their birth date.”

HMRC’s rules will also mean that the right to take benefits at an earlier age is retained on a “block transfer”. A block transfer is where two or more people transfer from the same transferring scheme to the same destination scheme at the same time.

However, Tully described the continuation of the existing block transfer rules as “disappointing”.

“These rules are complex and can effectively stop individuals transferring to a more modern, flexible, cheaper contract simply because they want to hang onto this right to take benefits at age 55,” he added.

“The legislation as drafted adds further hideous complexity to the pension system, which might be fine for pension geeks like me but for the average pension saver will prove nigh on impossible to navigate successfully without the help of a professional adviser.”

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