HR pensions spotlight: I want to retire at 55. Will I have to wait until I'm 57?

At the moment, the normal minimum pension age (NMPA) is 55. Under the Finance Act 2022, it will increase to age 57 on 6 April 2028. Although 2028 seems a long way away, employees need to understand whether (and if so how) this change is going to affect them so that they can approach and plan for their retirement in the right way.

What is the NMPA?

There are a number of different types of pension scheme: trust-based (or occupational), contract based (or personal, including group personal), defined benefit (DB) or defined contribution (DC). Most pension schemes are "registered", meaning that they are registered with HMRC. The NMPA is the earliest age at which an HMRC registered pension scheme can pay benefits to a member. Any benefits paid before the NMPA will be "unauthorised payments" and trigger tax charges of up to 55% for the member and 40% for the scheme.

Why is the NMPA changing?

The government is increasing the NMPA to 57 on 6 April 2028 to coincide with the increase in the state pension age to 67. To encourage people to remain in work and keep saving for retirement, there is also a policy intention that the normal minimum pension age will continue to rise in line with the state pension age. This means that, when the state pension age rises to 68, it's likely the government will legislate again in order to increase the NMPA to 58.

Will the new NMPA of 57 apply to everyone?

No. This change will not apply to some public service pension schemes (at the moment, armed forces, police and firefighters). In other schemes, pension scheme members will still be able to retire early at any age on ill health grounds. Members who already have "protected pension ages" of 50 or below (allowing them to take some or all of their pension benefits from those ages) will keep that protection. Under new rules (again set out in the Finance Act 2022), some employees will be able to keep a protected pension age of 55 for some or all of their benefits. This protection will mean they will still be able to take those benefits from age 55. They will not have to wait until age 57.

HMRC is going to publish detailed guidance on how the new protected pension age of 55 will work, but we do know the basics. It is potentially available to members of any type of registered pension scheme (trust-based/occupational, contract-based /personal, defined benefit or defined contribution). Eligibility will depend on when the member joined the scheme and what the scheme rules said about early retirement on 11 February 2021.

What does this mean for members?

Some pension scheme members might have heard that the NMPA is increasing from 55 to 57, but not be sure whether or how the change will affect them. Some will not have heard about the change at all. For members of DB and DC schemes, this change could affect decisions about when to retire, whether to transfer benefits, and what savings or investments to make outside of the pension scheme. For members of DC schemes, it could affect how much they save into the pension scheme and how they invest their pension savings.

The trustees of occupational pension schemes, and the managers of personal pension schemes (including group personal pension schemes) need to check – and take legal advice on – their scheme rules to find out which members will be affected by the change, and which have or will have a protected pension age. Once they have done this, they will need to communicate with members: your workforce. It should be possible for them to say something now, even if they have to explain that some of what they are saying is subject to final HMRC guidance.

There is a risk that scammers will try to exploit the change, for example by promising that if members transfer to a different scheme, they will be able to keep a NMPA of 55, or access an even lower NMPA.

Actions for employers

We suggest the following actions for employers: 

• Contact your group personal pension plan providers and ask them how the increase in the NMPA is going to affect your workforce, including any "lifestyling" strategy for investments, and when (and how) they plan to communicate with them. 
• Contact the trustees of any occupational (trust-based) schemes you sponsor and ask them the same question. (There are also a number of things that the trustees will need to talk to the scheme administrator about; for example, "ring fencing" transfers in, where the member had a protected pension age of 55 in their previous scheme and reviewing "block transfers".)
• Ask to see a copy of any member communications before they are sent. 
• Review any information you provide about the NMPA on your intranet, in handbooks or otherwise. Does it need to be updated? Is there anything you can do to underline the importance of taking financial advice or (for DC benefits) Pension Wise guidance before taking pension decisions?
• Review any employer or trustee materials for pension and pre-retirement sessions. Does this need to be updated?
• Review your contractual documentation. Are there any references to taking pension benefits from age 55 and, if so, do these need to be updated?
• Take legal advice as needed.
• If you are involved, or planning, a project to consolidate pension schemes, or stop members from building up benefits in a scheme or part of a scheme, be aware that any protected pension ages – including a protected pension age of 55 – need to be considered. Taking legal advice will help ensure that protected pension ages are preserved.
• If you sponsor a trust-based scheme, think about whether you would like to make changes to your scheme rules to increase the chances of members benefitting from a protected pension age of 57 when the NMPA is raised to 58 (likely when the state pension age is raised to 68). Again, you will need legal advice. If the trustees raise this, it is a benefit design point and so something that the employer and trustees would usually need to agree.

If you would like to discuss this change, please contact your usual Osborne Clarke contact or Claire Rankin.