Planned changes to the pension age will make life harder for scammers but are still unnecessarily complex and unfair.
Back in September, we highlighted the growing concern over the Government’s plans around the ‘normal minimum pension age’ or NMPA as it’s catchily referred to by industry folk.
The NMPA is the age at which you can start to access some of the money in your pension pot without having to pay a whopping great rate of tax, and it is currently set at 55, albeit with some exceptions.
The Government wants to increase the NMPA to 57 from 2028, at around the same time that the State Pension age will increase.
However, the situation is somewhat muddled as it is keeping 55 as a ‘protected pension age’ for some schemes ‒ basically, those that have it written into the scheme rules that savers can access their pots from this age.
It means that the age at which you can start getting your hands on your pension savings will depend entirely on what scheme you are saving into.
This has attracted a lot of concern for a couple of different reasons. Firstly, and most obviously, it’s not fair.
Why on earth should the age at which you can touch your pension come down to what is essentially a toss of the coin?
More pertinently though, there have been warnings that such a setup would be ripe for scammers to exploit. Under the original plans, there would be a transfer ‘window’, allowing savers to move their money into these excepted schemes until April the following year.
There were warnings that scammers would use this situation as a way to push people into making poor decisions with their lifetime savings, potentially losing the lot.
Changing tack
Thankfully, the Government has heeded some of those warnings and adapted its plans.
In a ministerial written statement last week, John Glen, the economic secretary to the Treasury, revealed that the ‘window’ during which people could join or transfer into a pension scheme that offered a protected pension age was being closed with immediate effect.
Glen explained that this decision was not announced at the Budget precisely because the Government didn’t want pension savers to find themselves rushed into making a quick transfer in the days before the window closed, noting that it could leave them with “poorer outcomes” including the risk of being outright scammed.
Credit where it’s due
First off, it’s worth giving the Government some credit here.
The industry was pretty united in highlighting the downsides of its frankly bonkers plans, but those in charge still need to listen and take on board those concerns.
Thankfully, in this case, it has done so.
As Helen Morrisey, senior pensions and retirement analyst at Hargreaves Lansdown put it, doing so has “blocked off one avenue for scammers who would have used the initial April 2023 deadline to exploit savers”.
Given the way that so many savers have been conned out of their pension savings by scammers since the introduction of pension freedoms, one fewer way for them to do so has to be welcomed.
Similarly, it’s really positive that pension savers are less likely to find themselves compelled into making decisions about their pension pot which are significantly based on the minimum access age, rather than other aspects like the costs, charges and performance which will ultimately have a bigger bearing on the eventual size of their pension pot.
Ludicrous and unfair
There’s no escaping the fact, however, that the remaining plans are still a cause for worry.
As Tom Selby, head of retirement policy at AJ Bell, explained: “We are left with the ludicrous situation that those people who are today in a scheme with a protected pension age and later transfer might end up in a scheme with two different minimum pension access ages.
"As such, the complexity created by this change will remain.”
To describe that as ludicrous is perhaps being a little polite.
It’s a nonsense situation, entirely of the Government’s own making, and is leading to a two-tiered pension system where most people will have no clue what tier they are in until they come to the point where they may want to actually access some of their savings.
The authorities have shown that they are willing to change course when it’s clear they’ve got it wrong already on this issue. It’s not too late for them to do so again and remove this daft complexity.