Those who start new jobs and are auto-enrolled into a scheme from the day after the consultation will lose the ability to access their pension at age 55, which they would have retained had they stayed in their existing arrangement.
Those who do not have a protected pension age but who take scheme benefits before age 57 will, as of April 2028, be subject to unauthorised payments tax charges.
Meanwhile, employers will be faced with the administrative difficulties of managing the transitional arrangements, which may have to run two parallel sets of rules for schemes set up before and after the consultation.
Former pensions minister and LCP partner Sir Steve Webb said: “There will be a need for clear communication with members to make sure they understand the different rules that may apply to their different pensions.
"As we move towards an era of pension consolidation, members will have to be careful not to accidentally throw away protected rights to access a pension at age 55.”
Block transfer rules hinder pension freedoms
Andrew Tully, technical director at Canada Life, welcomed the certainty provided by the consultation, which he said would “give time for appropriate planning over the next seven years”.
However, while the protection regime covering those who currently have a right to take benefits before age 57 was a positive step, he expressed his disappointment at the government’s proposed continuation of ‘block transfer’ rules.
A block transfer occurs when two or more people transfer to and from the same scheme at the same time, and the government’s proposals would see these members retain their existing protections if subject to such a change.
However, if they transfer individually, they will not benefit from that protection.
Tully said: “I’d like the government to allow people to keep their entitlement to a lower pension age following any transfer — not just a very specific type of transfer.
“These rules are complex and can prevent individuals benefiting from pension freedoms by taking the most suitable option for their circumstances.
“Removing the block transfer rules and allowing those affected to keep their entitlement to a lower pension age on transfer would be a positive move,” he concluded.
Benjamin Mercer is a reporter at FTAdviser's sister publication Pensions Expert