Charlene Young looks at the latest raft of retirement policies from the government, which she says, could detract from its pension engagement agenda
I am not the first person in the pensions world to call for joined-up thinking when it comes to the current raft of regulatory change.
Last month saw draft legislation released by HM Treasury raising the normal minimum retirement age (NMPA) by two years from 2028.
What appears on the surface as a small change that helps people save longer for their retirement, could have a negative impact on other government initiatives designed to increase transparency and engagement across the retirement landscape in the UK.
The increase in NMPA
The NMPA is due to increase from 55 to 57 in 2028.
The draft rules extend a protected retirement age of 55 to members of schemes that, on 11 February 2021, included both;
- an unqualified right to savers to take their retirement benefits; and
- that right is from a specified age of 55. So not simply referring to the concept of the NMPA or a legislative reference.
This protection may also be kept upon transfer, though the rules work in different ways depending on the fine detail of the transfer, and there is a separate carve-out for firefighters, police officers and members of the armed forces public sector pension schemes which will all retain a retirement age of 55.
The protection is most likely restricted to far fewer schemes that it might have been when we saw the proposals in a February consultation. For instance, it is difficult to see how many (if any) SIPPs and personal pensions will be able to meet both requirements above.
Muddled policies
However, if we join up the draft rules with existing government policy drivers of simplicity and engagement, things become rather muddled. Here are three examples where joined-up thinking from HM Treasury and DWP is needed.
The first is the pensions dashboard, due to launch in April 2023 for the first tranche of schemes. Providers will need to display basic data along with an expected retirement income based on their customer’s chosen retirement age for each scheme.
The proposed NMPA rules extend a protection of age 55 in a way that means a saver could have some benefits accessible at age 55 and others from age 57 all within one scheme. For those with a chosen retirement age of 55, but where some benefits can’t be accessed until 57, how is it possible to supply a single income figure based on two chosen retirement ages in the same scheme? Further complexity will undermine confidence in dashboards or even worse for engagement, delay them further.
The second is the simpler annual statement – this is a new statement, no more than two pages long, setting out information in an easy-to-understand template. These are due to come into force for qualifying workplace schemes from April 2022 with the FCA likely to make changes to personal pensions at a later date. Again, these regulations are built on the fact that retirement age is selected or set at scheme level. However, the proposed NMPA legislation could leave savers with two ages under the same scheme. Does this also mean two statements for these schemes and no simple statements at all for other schemes? Hardly simple.
Finally, the issue of consolidation. The DWP is marching on with its proposals to speed up consolidation of smaller pension pots for disengaged members, but will these savers understand that they have a mixture of minimum retirement ages within their schemes? Or, what if their pot with a protected age of 55 gets transferred into one with a new, higher minimum retirement age? Those with the smallest pots are often the least engaged so it will be little surprise if they are left further confused by yet another change in rules when they wish to access their funds.
Another area of concern is about savers falling prey to sophisticated scammers. Although the model for pension might have moved on from the 2010s, scammers will no doubt see this as a window of opportunity to attract people to sham arrangements. When the NMPA increased from 50 to 55 back in 2010 much of the scam activity in the following years centred around loopholes that were marketed as providing “early access” and would have been tempting to people who had previously believed they could access their funds from age 50.
How are savers supposed to have confidence in their retirement planning decisions when even the policies to increase engagement could be at odds with tax and access rules handed down by HM Treasury?
Charlene Young is senior technical consultant at AJ Bell
