The NMPA changes were announced in July, proposing an increase from age 55 to 57 to come into effect on April 6, 2028. But by trying to protect some Britons from the age rise, some have suggested that the Government may only be adding to the confusion.
Becky O’Connor, Head of Pensions and Savings at interactive investor had her say on the proposed alterations to the NMPA, and urged the Government to avoid ambiguity for the people impacted by the changes.
She said: “The complexity of pensions is already massively off-putting for people and can lead to imperfect decision-making with negative consequences. Further confusion must be avoided at all costs.
“If the minimum pension age is rising to 57, it should rise to 57 for near enough everyone with a pension. Any exceptions should be minimal, for instance where the nature of the occupation might require earlier access.
“As things stand, with some large schemes having 55 written into the rules rather than ‘NMPA’, at whatever age that is, you could have a big proportion of the working population accessing their pension at 55 rather than 57, despite the general change to the NMPA. Those wanting access to their pension as early as possible could well end up moving to a scheme with a minimum age of 55 rather than 57. If it becomes possible for people to apply for a minimum pension age of 55 rather than 57, this could make things even tricker to administer.
“As advisers, clients come to us daily with reems of questions about their pension. Some are quite simple, while others are a minefield of complexity. There’s one question that should be the most basic of them all, what age will I be able to access my pension?
“But as a result of these proposed changes to the NMPA, this is going to be exponentially harder to answer. The government’s proposals will create a pension regime where there is not one, but three potential ages at which someone can access their pension, and indeed someone may in fact have one, two or even all three ages applied to various pension pots. It’s a long way off but a fourth NMPA is going to be added to the mix between 2037 and 2039.
“This makes the task of retirement planning a whole lot harder and runs the risk that pension savers will just switch off altogether. There are various government initiatives in the pipeline that will boost engagement with pensions, most notably the pension dashboards programme. But how is it going to look when someone goes online onto the dashboard to check their pensions and finds that have more than one normal minimum pension age?
“A spoonful of simplicity helps the pension go down – but these changes are precisely the opposite. They are a bitter bill to swallow and will have ramifications for years to come.”
As an example, one of the more bizarre features of the protections included within the changes is that even children can take advantage of the ability to secure a NMPA age of 55 by taking out a pension before 2023.
The changes have caused many concerns from observers, including issues where scammers could use the confusion surrounding pension access age to defraud savers, as the new plans may add an increased level of complexity to the pensions framework.
There is also worry that because of this complexity, mistakes could be made when transferring schemes. If someone is mistakenly confirmed as having a protected pension age of 55, when in fact it should be 57, they could be hit by a 55 percent unauthorised payment charge by HMRC if they access their pension before age 57.
Some have said that by bringing attention to the NMPA through these changes, it may give people the impression that they should access their pension pots at the minimum age, when in fact, doing so could come with risk and would not be advisable for everyone.
The Pensions Dashboard was introduced to help show people the value of their retirement income at the age which they would like to retire, but there are concerns that with the NMPA changes, things will not be so straightforward.
If someone has chosen their retirement age as 55 but they can only access some of their pensions at that time, with the remainder not being available until age 57, it is unclear how their projected income will be shown on their Pensions Dashboard, which are designed around people having one retirement age.
There is also an issue at present where many people have lots of small pension pots, which can make it easy to lose track of them. Consolidating one’s pensions is an option which may be of use to some people, but if providers are having to consolidate different pots with different pension ages, there could be complications.
To improve people’s understanding of the state of their retirement savings, the Government may require providers to use simpler annual statements, but if someone can only access some of their pot from one age and some from another, they will require two statements every year, which could negate efforts to simplify the process.