Looking Forward …

One of the interesting things about working at Aries is that I never know what sort of queries our members might raise with us.

For this article, I will look at a query that is very much ‘looking forward’. In a companion article, ?I will look at another query that is ‘looking back’.

Looking forward – Increase in the Normal Minimum Pension Age

This query concerned the increase in the Normal Minimum Pension Age (NMPA) from age 55 to age 57, which is due to take effect from 6 April 2028.

The issue here concerned member who will reach age 55 before 6 April 2028 but will not have reached age 57 by that date. The central query was whether the payment of benefits to such a member would have to cease from April 2028 until the individual reached age 57.

Our enquirer had cited guidance from several sources, some suggesting that, in this situation,? payments could continue and others suggesting the contrary. We were asked what our view was here and what is the latest legislative position.

We were able to confirm that, in our view, HMRC will have to make provisions allowing such members to continue to receive their benefits between 6 April 2028 and the point that they reach age 57. Although our enquirer referred to an individual designating funds as available for drawdown, suppose instead that they claimed a Scheme Pension on reaching age 55 (before 6 April 2028).

One of the conditions for a pension to be a Scheme Pension is that:

the pension is payable (at least annually) until the member's death or until the later of the member's death and the end of a term certain not exceeding ten years

[Paragraph 2 (3), Schedule 28, Finance Act 2004]

If the scheme had to suspend payment of the scheme pension from 6 April 2028 until the member reaches age 57, then this “payable at least annually” requirement might not be met and, if so, all future instalments of the scheme pension (when they recommence at the point that the member reaches age 57) would be unauthorised payments. We do not see how this could be HMRC’s intention.

Instead, we anticipate that there will be some form of transitional provision introduced which will have the effect that, where entitlement to the benefit arose before 6 April 2028, payment of that benefit can continue, notwithstanding the increase in NMPA.

The Treasury touched on this aspect in the Response to the 2021 consultation on the increase in NMPA, where they said (in paragraph 3.2):

The Government also acknowledges the importance of establishing a clear position on the transitional arrangements. For example, members who do not have a PPA and have reached age 55 but not age 57 by 6 April 2028 and for whom a transitional issue may arise. The Government will provide further advice on the proposed transitional arrangements and provisions in due course.

Similarly, HMRC mentioned this point in Pension Schemes Newsletter 136 of January 2022, where they said:

2.4 Transitional arrangements

There may be transitional issues that arise for some members. For example, where the member does not have a protected pension age and they have reached age 55, but not age 57 by 6 April 2028. Establishing a clear position on the transitional issues is therefore important so that schemes have sufficient detail on these well before the increase to age 57 comes into effect in 2028.

Work on the transitional arrangements is underway and is likely to require legislative change through regulations to make sure the policy will work as intended. We’ll provide further updates in future pension schemes newsletters.

HMRC have not yet published any further detail on how they intend to address these 'transitional issues' (they have, for the last year or so, been preoccupied with other things!), however in our view they will be compelled to introduce provisions such that, where the benefit was already in payment before 6 April 2028, payment of that benefit can continue.

We are, of course, monitoring the situation here and will update our Aries members as and when they are any further developments.

As it happens, just yesterday PASA published some guidance on preparing for the increase in NMPA, which is available here.

Aries Insight?provides comprehensive and detailed guidance on the application of the rules concerning the increase in NMPA, as well as insight into the meaning and impact of UK pensions regulation and clear guidance on the practical implications for pension providers, trustees, administrators and consultants.? If you are not already an Aries member and would like to find out more about what Aries Insight can offer you, then please drop me a mail at [email protected] or give me a call on 01536 763352.

Please note that?we are not lawyers or financial advisers.?The information above sets out our best understanding of the legislation and how it applies, but should not be taken as constituting legal or financial advice.