New Treasury pension
proposals risk creating ‘second class’ pension schemes

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A consultation document published today by HM Treasury on raising the normal ‘minimum pension age’ from 55 to 57 risks creating two tiers of pension schemes according to LCP partner Steve Webb.

The Government has confirmed its intention, first signalled in 2014, to raise the earliest age at which people can normally access their pensions from 55 to 57.  This reflects the rise in the state pension age to 67 in April 2028.  At that point, the Treasury proposes that the normal minimum pension age usually the earliest access date allowed by tax law will rise to 57. 

However, for pension schemes which are already open today on the date of this consultation if, as is usually the case for DC, people have the right to access their money from age 55, that right will remain even for money paid in after today.  But for pension arrangements opened from tomorrow, the normal pension age will rise to 57 in 2028.  For those in age groups affected by the change, new pension arrangement may be regarded as ‘second class’ compared with pensions that were already open when the consultation was published.

The change may be of particular relevance to those currently in their late 40s or below, who want to access their pensions before 57 but who will only now be able to do so from pension schemes of which they are already a member as at today.  Also, as people change jobs, those who are automatically enrolled into a new pension tomorrow could face an access age of 57 compared with an access age of 55 for their existing pensions.

Commenting, Steve Webb said:

“Whilst the increase in the normal minimum pension age from 55 to 57 had been widely trailed, the way in which the change will be implemented could be complex for savers and for schemes and risks creating ‘second class’ pensions with tougher access rules depending on when they were opened.  There will be a need for clear communication with members to make sure they understand the different rules which may apply to their different pensions.   There are some provisions about transfers but they aren’t straightforward  As we move towards an era of DC  pension consolidation,  members  will have to be careful not to accidental throw away protected rights to access a pension at 55.”