By Lee Halpin

The pension freedoms handed individuals unprecedented flexibility in how they could access their pension savings.

Restrictions on how much could be withdrawn from a pension fund were removed, but this was not an entirely free reign.

There was an inflexible underpinning in that individuals still had to wait until age 55 (unless retiring due to ill health) to be able access their pensions, or normal minimum pension age, to call it by its proper name.

For most people, there is an obvious reliance on having adequate private savings over and above the state pension in order to support the standard of living to which they aspire in retirement. You only need to consider that the basic state pension is equivalent to around 20 per cent of the average UK salary.

Following years of silence on the issue, the government has now reconfirmed its intention to press ahead with the coalition government’s 2014 policy to increase the normal minimum pension age to age 57 on April 6, 2028, thereby aligning it 10 years below the new state pension age.

However, it is worth noting that this change will not apply to those who are members of the firefighters, police or armed forces public-service pension schemes.

Generally, having a normal minimum pension age helps to ensure that pension savings are used as intended – to provide income and security in later life, and in doing so providing some safeguard for the generous tax incentives given to individuals and employers to save into pensions (- £53.7 billion in 2017-18), thus helping to deliver this overall policy objective.

But, as with most things, it does not operate in a vacuum. Increases in longevity and changing expectations of how long we will remain in work, and in retirement, have influenced the implementation of this latest policy.

If you consider that we are living, on average, almost a decade longer than our grandparents but that people today are leaving the labour market earlier than in the 50s and 60s, then the need to recalibrate pension policy is understandable.

The UK Government’s fundamental challenge is that, with an ageing population and a decline in traditional final-salary type pension schemes, it faces a growing risk of old age poverty and the prospect of burdening younger generations with significant tax rises.

Given it is planned that the state pension age will be increased to 68 from the year 2037, it would appear changing the normal minimum pension age to 57 is just the first step in a clear direction of travel.

So, a rise in the normal pension age seems eminently sensible. But, as with most things pension related, complication is never far away. The source of the complication in the case is the proposed protection of existing scheme rights.

The government proposes to offer a protection regime for “an individual member of any registered pension scheme (occupational or non-occupational) who has a right under the scheme rules at the date of this consultation (February 11, 2021) to take pension benefits at an age below 57 will be protected from the increase in 2028”.

Therefore, the right to protect a lower, normal pension age will be on a scheme-by-scheme consideration based on the scheme’s specific rules.

Having a right is understood to mean an unqualified right. But, as most personal pension schemes will define the earliest retirement age as the normal minimum pension age (rather than an explicit reference to a particular age) it is expected that this would not satisfy the protection condition.

Similarly, with regard to occupational arrangements, where the consent of any other person is needed (such as an employer or trustee) it is expected that this would not satisfy the protection condition either.

All of this means that protection is likely to apply to the few rather than the many, which would intuitively feel to be in-keeping with the policy objective. Nevertheless, the lack of details thus far around protection have led to calls for greater clarity around the government’s intentions.

On the upside, there are other elements of the proposed transitional protection that should be credited with their simplicity. For those qualifying, all of the individual’s benefits will be protected, not just those built up before 2028. There will also be no need for individuals to apply to HMRC for protection.

So where does this leave us? As the right to protection applies from the date of the consultation rather than the position in 2028, any subsequent transfer between schemes could inadvertently cause a loss of protection (as, like earlier versions, pension age protection will be lost unless part of a block transfer). So, care should be taken by those born after April 6,1973, who would be keen to retain the option of retiring at age 55, when considering transferring between schemes.

Also, as people may have benefit entitlements from more than one pension scheme then, as things stand, it cannot be assumed that they will be able to be accessed at the same time.

As with any consultation related to proposed legislation, it can be subject to change. But it is probably one to keep an eye on for anyone who feels that they may be impacted and to seek financial advice if they are in any doubt.

Lee Halpin is head of technical services @sipp.