In March 2014, as part of the ‘Freedom and choice in pensions’ consultation, the Government announced that the age people could access their private pension savings would be linked to the State Pension. As a result, the normal minimum pension age (NMPA) would rise from age 55 to age 57 on 6 April 2028 –10 years below State Pension Age.

A consultation was published in February 2021, followed by a consultation response, policy paper and draft legislation in July 2021. In the response, the government confirmed that anyone with an unqualified right to take their scheme benefits from age 55 or 56 on 11 February 2021 (the date the consultation was published) would retain that right in the form of a protected pension age.

The response also introduced a window for individuals to join a pension scheme that provided an unqualified right and acquire a protected pension age. To benefit from the 2028 protection, an individual would need to transfer to the new scheme by 5 April 2023.

This announcement attracted a lot of industry criticism. There were fears that customers would move schemes to secure a protected pension age and concerns that the window would be used by scammers to convince people to transfer to rogue schemes and investments.  

As a result, on 4 November 2021, the government decided that the window to secure a pension age of 55 had suddenly closed at 23.59 on 3 November 2021. This was instead of 5 April 2023, as originally intended.

Final eligibility requirements

The final rules now confirm that to receive a protected pension age of 55 or 56, a scheme member must have met the following conditions:

• Immediately before 4 November 2021, they must have had the right to take pension benefits before they reached age 57.
• Their right was unqualified, in that they didn’t need anyone’s consent to take their benefits.
• On 11 February 2021, their scheme rules included the provision to pay benefits before age 57.

Substantive transfer

To protect individuals who were already in the process of transferring to a qualifying scheme on 4 November 2021, the rules state that a protected pension age is still secured if someone had already made ‘a substantive request to transfer’ by 4 November 2021.

A substantive transfer is where a member had made a request to their pension scheme on which they are required to act in relation to the transfer. This means an instruction from the member to transfer their pension funds to a named qualifying pension scheme. A casual enquiry is not a substantive transfer request.

Keeping a protected pension age after transfer – block transfers

On earlier forms of protected pension ages (below age 55), scheme members retain their protection on transfer to a new scheme if the transfer is made as a block transfer - broadly, 2 or more members, transferring all their benefits together, within a single transaction.

This rule follows for scheme members with a 2028 protected pension age of 55 or 56, who also retain their protected pension age if a block transfer takes place.

However, for those with a protected pension age of 55 or 56, the block transfer rules are slightly relaxed when compared to those holding earlier protected ages. In particular:

• They are allowed to have been a member of the receiving scheme for more than 12 months –the 12-month ‘permitted membership period’ is not a requirement.
• All the member’s rights do not need to come into payment at the same time to retain the protection.
• There are no restrictions around the member’s re-employment after taking benefits.

This means that where someone with 2028 protection makes a block transfer, they retain a protected pension age of 55 or 56 on all benefits held within the new scheme – including any existing benefits, further transfers in and additional contributions made.

Keeping a protected pension age after transfer – individual transfers

Unlike earlier forms of protected pension age, those with 2028 protection will also partially retain their protected pension age when an individual transfer is made.

Individual transfers are set at arrangement level. This means that although a whole arrangement must be transferred to retain the protection, it isn’t a requirement to transfer all the arrangements held within the scheme. However, if a partial transfer of an arrangement is made, the protected pension age will not apply to any benefits under the new scheme.

Where a valid individual transfer occurs, the 2028 protected pension age will only apply to the funds transferred. It does not apply to any existing funds, further transfers, or new contributions. This means that the protected benefits will require ring-fencing within the receiving scheme to identify them from other non-protected assets.

Comment

The sudden closure of the window to secure a protected pension age on 4 November 2021 gave no time for pension schemes to change their transfer processes. As a result, schemes receiving transfers do not hold the information needed to understand which members have a protected pension age and which benefits need ring-fencing.

To retrospectively share information on past transfers, a cross-industry approach has been agreed. This is now underway and will hopefully ensure that schemes will be given the information needed to understand if benefits received since November 2021 hold this protection.

Individuals affected by the increase to normal minimum pension age will want to know whether they have protection. If they do, this will be a consideration when they are thinking of moving to a new provider - unless they are part of a block transfer, some of the protection will be lost on transfer.

In respect of LV’s Flexible Transitions Account (SIPP), the scheme rules explicitly refer to age 55 as the minimum pension age for taking benefits. Therefore, customers who were members of the scheme by 4 November 2021 do benefit from a protected pension age of 55.        

Important information

Please note this is for general information only and is based on LV=’s understanding of the relevant legislation and regulations and may be subject to change.

The tax treatment of benefits depends on individual circumstances, and may be subject to change in the future.

The use of this document is at your own risk, and the content should not be used for the provision of professional advice.

LV= accept no liability for any damages, losses or causes of action of any nature arising from your use of this document.