Pension groups ask HMRC to clarify rules for 57 age
The pensions sector is urging HMRC to clarify rules for the transition to the new normal minimum pension age (NMPA) as it rises from 55 to 57 on 6 April 2028. Industry groups warn that without greater guidance, some payments made after that date could be classified as unauthorised, leading to unexpected tax penalties. HMRC has published draft regulations aimed at protecting specific payments for members aged 55 or 56 who were already entitled to benefits before the change takes effect. However, the Investing and Saving Alliance (TISA) and the Society of Pension Professionals (SPP) say the rules leave too much uncertainty for those already drawing income.
Uncertainty for current pensioners
TISA head of policy for products and long-term savings, Renny Biggins, said the draft regulations provide schemes with enough detail to prepare, but warned that people receiving pension income through drip-feed arrangements or taking tax-free cash in instalments remain at risk. Biggins argued that HMRC should confirm that pension or annuity payments starting before April 2028 can continue while members are still aged 55 or 56. He added that the regulator should also provide greater clarity on protected pension ages following transfers.
The Society of Pension Professionals (SPP) expressed worries similar to those of other groups, urging HMRC to officially state that pensions already being paid out before April 6, 2028, can continue without interruption. They emphasized that this assurance should ideally be made permanent through the Pensions Tax Manual. This clarification is key due to the ambiguity surrounding whether the NMPA test applies solely at the initiation of the first pension payment or to every subsequent payment.
Administrative delays and lump sums
Industry organizations also cautioned that the proposed change might prompt individuals aged 55 or 56 to access their tax-free cash earlier than intended. This behavior arises from the fear of losing flexibility for a period of up to two years. The SPP advocated for a government-led public awareness campaign prior to implementation. Additionally, they suggested that the Financial Conduct Authority examine how the change impacts pension wake-up packs. The SPP also urged the regulator to raise the pension threshold age from 75 to 77, maintaining the existing 20-year gap with the NMPA.
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The SPP argued that members might face substantial and unforeseen unauthorized payment charges due to administrative delays beyond their control. This concern is particularly pertinent for UFPLS payments, where entitlement under current laws arises just before payment. The association pointed out that an individual could initiate the necessary steps to request a UFPLS before the deadline, but if payment is delayed until after April 5, 2028, they would technically become entitled only after the NMPA has increased to 57.
The Association of Consulting Actuaries (ACA) echoed these concerns, stating that the differences between UFPLS benefits and scheme pension or drawdown arrangements would be challenging for members to comprehend. The ACA emphasized that administrative delays could result in some payments requested before the change not being completed until after the deadline. They urged HMRC to consider extending the transitional provisions to address these timing issues.
Protecting established income streams
The ACA highlighted a scenario where a member without a protected pension age, who had started receiving UFPLS payments before April 2028, would currently be unable to continue receiving these payments after the change until they reach 57. This potential disruption to an established income stream is a significant concern. The association argued that there is a valid case for protecting further UFPLS payments in situations where at least one payment had already been made from the same uncrystallised fund before April 6, 2028.
Both the SPP and ACA also called for transitional protection around small lump sums and authorised member surplus payments. The SPP argued that members who had already received an authorised member surplus payment before April 2028 should be able to continue receiving further payments until age 57. The ACA called for payments for which entitlement arose before the NMPA change to remain payable from age 55. The SPP urged HMRC to finalise the regulations quickly, warning that delays could increase uncertainty and lead members to change retirement decisions based on incomplete information.
