Pension age is changing – ‘Real risk’ HMRC will ‘clobber’ Britons with 55% charges
State pension: Expert discusses when payments are made
We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info
A leading retirement expert has criticised the Treasury for their handling of normal minimum pension age (NMPA) reforms, as he claims their attempts to protect some people from the proposed changes will lead to “outlandish confusion”. As part of the plans, savers can retain the lower NMPA by opening a scheme offering an unqualified right to access their pension at age 55 by April 5, 2023.
The NMPA changes were announced back in July, as plans were published which proposed an increase from age 55 to 57 to take effect on April 6, 2028. However, by trying to protect some Britons from the age rise, the Government may be adding to the confusion, it’s been suggested.
Tom Selby, head of retirement policy at AJ Bell has criticised the Treasury’s handling of the situation. He said: “The Treasury has taken what should have been a simple reform and turned it into a hot mess of complexity. In attempting to provide ‘protection’ for some people from the proposed rise in the minimum pension access age to 57, policymakers will cause outlandish confusion for savers.
“Everywhere you look there are holes and problems in these proposals. Perhaps most worrying is the risk that, by creating a two-tier pension access system, the Government will inadvertently open the door to scammers. It is not too late to avoid this madness and we strongly urge the Treasury to step back from the brink.
“Furthermore, there is an alternative way forward which achieves the policy intention and is unbelievably simple – do away with the proposed protection regime and move everyone to a ‘Normal Minimum Pension Age’ of 57 in April 2028.”
Andrew Tully, technical director at Canada Life echoed the sentiments of Mr Selby and shared his bewilderment at how the new policy is being implemented. He said: “What should have been a simple process has turned into a hugely complex mess. If the Government believes there are genuine reasons to increase the NMPA to age 57 then that should apply to most people, although there is an argument for an exception for ‘uniformed’ pension schemes. This draft legislation gives wider protection, and on a completely random basis rather than being targeted at a specific cohort or age group.”
One of the stranger elements of the protections included within the changes is that even children can take advantage of the ability to secure a NMPA age of 55.
Mr Tully explained: “We even have the bizarre scenario that a child could take out a pension before 2023 (in a suitable scheme) and protect the ability to take benefits at age 55 in the 2070s. That is nonsensical. The NMPA should either be moved to 57 for all, with very limited exceptions, or the Government should retain age 55 and re-think its entire policy around minimum pension ages.”
An HM Treasury spokesperson said: “We believe it’s right to protect pension savers whose scheme rules provide them with an unqualified legal right to take pension benefits before age 57. That is why earlier in the year we set out the details of the framework and have been consulting on the technicalities to ensure it is as simple and fair as possible.”
AJ Bell believes that the changes to NMPA will cause huge issues due to the confusion they will inflict on people nearing retirement, and they outlined five potential problems that could arise if the changes go ahead as planned:
Scammers will use pension access age confusion to defraud savers
“It doesn’t appear that many personal pension schemes actually offer an unqualified right to access your pension at age 55, however this won’t stop fraudsters trying to use the confusion to line their own pockets. Scammers will create fraudulent scheme documentation which gives the impression that a protected pension age of 55 is held and use this to encourage savers to transfer to them.
“It will be extremely difficult for someone to know whether or not the documentation is legitimate. The last thing anyone needs is for the Government to create a new avenue for scams, which is exactly what this proposal will do.”
Pension savers will face yet more complexity
“Savers already have to navigate a pensions framework which is too complex, containing three different versions of the annual allowance, a lifetime allowance and myriad other ‘protection regimes’ introduced down the years. The Treasury’s plans will simply add to this, creating a ludicrous situation where someone could have two otherwise identical pensions with different NMPAs.
“And it gets worse. Because people transferring pensions from a scheme with a protected pension age to a scheme without a protected pension age will be entitled to retain an NMPA of 55 only for the transferred funds, providers will be required to ‘ringfence’ the transferred part of their retirement pot. This will mean savers will have a single pension containing some funds they can access from 55, and others where they need to wait until 57!”
Health and social care pensioner levy blow – NI payments won’t count towards State Pension [ALERT]
Inheritance warning: The mistake that could leave your retirement in ruins [WARNING]
Bank of England issues warning as old £20 notes set to become void – cut-off date alert [WARNING]
If mistakes are made, savers risk being hit with a 55 percent unauthorised payment charge
“Given the level of complexity involved, there is a real risk a scheme someone is transferring from will mistakenly confirm the person has a protected pension age of 55, when in fact they should be moving to 57.
“If this is found to be incorrect and the saver accesses their retirement pot before age 57, HMRC would almost certainly clobber them with an unauthorised payment charge of 55 percent.”
The Treasury risks failing to achieve its policy objective
“The policy intent of increasing the NMPA to 57 is to take account of life expectancy improvements. Over the longer-term, the Treasury has said it wants to keep a 10-year gap between the NMPA and the state pension age.
“The state pension age is due to increase to 67 by 2028 and 68 by 2046 (although the Government has indicated the rise to 68 will be accelerated by 7 years to 2039). By creating a protection regime for those who randomly have an unqualified right to an NMPA of age 55, policymakers are unnecessarily undermining the overarching aim of the reform.
“Furthermore, the proposed protection rules would create a precedent for future increases in the NMPA. Providers are likely to adapt their scheme rules to ensure savers have an unqualified right to retain an NMPA of 57 from 2028 onwards – meaning future increases in the minimum access age will need to be implemented in yet another different way.”
People will be encouraged to focus on accessing their fund at the NMPA
“If the Coronavirus pandemic has taught us anything, it’s that just because the Government says you can do something, it doesn’t mean you should. Whether your NMPA is 55 or 57, in most cases taking an income from this age would come with a high risk of not being sustainable.
“Yet by focusing so much attention on this point in time, the Treasury risks giving people the impression they should be accessing their retirement pot in their mid-50s.”
AJ Bell also expressed concerns that other Government initiatives will be compromised due to the changes, making life more complicated for Britons’ trying to keep track of their retirement savings:
“The aim of Pensions Dashboards is to show people the total value of their retirement income at their chosen retirement age. If someone has a chosen retirement age of 55, but can only take some of their pensions at that age, with the rest not available until 57, how will that projected income be shown on Dashboards? Pensions Dashboards are currently being designed around people having a single retirement age.”
Small pots consolidation
“The Government is looking at how to address the issue of people ending up with lots of small pension pots, something that has been amplified by auto-enrolment. One option is for schemes to have to consolidate multiple pots into one. If a small pots scheme has a protected pension age of 57 and providers have to consolidate small pots into it which have a protected pension age of 55, it will create a ‘mix and match’ access age for people with the very lowest level of understanding of pensions.”
Simpler annual statements
“The Government is proposing to require pension providers to introduce simpler annual benefit statements to improve people’s understanding of their pension savings. However, these are meant to be based on a particular selected retirement age. If someone can only access part of their pot from that selected retirement age and must wait a further two years for the rest, they’re going to need two different statements. Far from simple.”
Source: Read Full Article