Govt urged to take simpler approach to proposed NMPA changes

Industry experts have urged the government to take a simpler approach to its proposed plans to increase the normal minimum pension age (NMPA), with a number of alternative implementation approaches suggested.

The comments were made in light of the government's recent proposals to increase the age at which people can access their pension without a tax penalty from 55 to 57 in April 2028.

In response to the government consultation, industry experts warned that the plans may have “unintended consequences” that could effect retirees and the industry for “many years to come”.

“The main difficulty with these proposals is not the actual NMPA increase, which many savers and advisers will have been planning for since it was first proposed seven years ago,” explained Curtis Banks pension technical manager, Jessica List.

“Rather, it’s the overly complex proposals for protected pension ages, which we believe could have unintended consequences that could affect retirees, advisers, and the industry for many years to come.

“It’s unclear why a more complicated system is being suggested now than in 2010, when a larger increase took place with less notice.”

This was echoed by AJ Bell senior analyst, Tom Selby, who warned that the current proposals risk creating a “retirement lottery” based on how their scheme rules have been written.

He explained: “Specifically, those who are deemed to have an ‘unqualified right’ to access their retirement pot at age 55 as at 11 February 2021 would be able to retain it, provided they do not transfer to another scheme from that date, unless special circumstances apply.

“This would, entirely arbitrarily, create a world where some people can access their pension from age 55 and others from age 57. Many people would find themselves in the ludicrous position of having two otherwise similar pension pots which can be accessed from different ages.”

Selby warned that this approach could create “damaging and entirely avoidable complexity”, warning that those who find themselves in a scheme which allows access at age 55 may be deterred from moving their pension elsewhere, even if this was in their best interests, due to lower charges, more investment options or better administration.

“This would clearly be a deeply undesirable outcome and must be avoided at all costs,” he continued.

In light of this, Selby suggested that increasing the NMPA to 57 for everyone, except members of the armed forces, police and fire service, would be "infinitely simpler" and better reflect the policy intention of increasing the NMPA in line with rising average life expectancy.

The Association of British Insurers (ABI), has also warned that whilst the changes were being introduced with good intentions to protect savers, they could “bake in complexity for all savers for decades to come”, echoing the call for a simpler approach.

“Now that the government is increasing the normal minimum pensions age again, we want simplicity to be the watchword,” said ABI head of long-term savings, Rob Yuille, arguing that the current proposals would create an “unnecessary layer of complexity and uncertainty for all savers”. 

In particular, Yuille warned that the plans could create inconsistent “always caveated” communications to members, as well as potentially leading to legal disputes about what is and isn’t protected.

In addition to this, he also echoed Selby’s concerns that savers may keep a protected pot, even if it’s not in their best interests.

“If they do decide to transfer, they may well receive additional warnings which may hold up the process – counter to the drive for competition, for faster transfers and the progress the industry has already made in that respect,” he added.

Considering these concerns, the ABI has recommended that there be no new protected pension ages in the current proposals, other than those linked to specific professions, like in 2010.

“To be clear, this would remove a right that some consumers would otherwise have, and that is not a step to be taken lightly,” Yuille explained. “But in the context of the government removing that right for most people, and with the counterbalance of simplicity that favours everyone, we think simplicity wins.”

Concerns over the “significant risks” of discouraging individuals from transferring into better value schemes were raised by Aegon, with pensions director, Steven Cameron, highlighting a number of alternative implementation approaches.

He commented: “One approach would be to allow any individual who transfers to keep any entitlement to take their benefits from their current minimum age. There is also scope to simplify and bring together various forms of protection.

“While not something all individuals would welcome, another option which would avoid many complexities would be to defer the change until state pension age increases to 68 in the 2040s but without any protections.

“The government might also be able to meet its objective of longer working lives through finding other ways to discourage rather than outright ban taking benefits as early as 55.”

(This article first appeared on our sister title www.pensionsage.com.)

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