Government proposals on protected pension ages will create a complex two-tier system for advisers when the minimum age rises to 57 in 2028, experts have warned.
Tom Selby, senior analyst at AJ Bell, said the government's plans should be “avoided at all costs”.
He said the problem centred on proposals to allow people with an ‘unqualified right’ under their scheme rules to access their pension from age 55 provided they don’t transfer to a different scheme, while others will have to wait until they are 57.
He said this would mean people would find themselves in the position of having two otherwise similar pension pots which can be accessed at different ages.
Selby said: “This approach risks creating damaging and entirely avoidable complexity. Furthermore, those who randomly find themselves in a scheme which allows access at age 55 may be deterred from moving their pension elsewhere, even if this is in their best interests to take advantage of lower costs, more investment options or better administration.
“This would clearly be a deeply undesirable outcome and must be avoided at all costs. Increasing the ‘normal minimum pension age’ to 57 for everyone, except members of the armed forces, police and fire service, would be infinitely simpler and better reflect the policy intention of increasing the age at which people can normally access their pension in line with rising average life expectancy.”
Jessica List, pension technical manager at Curtis Banks, agreed the proposals would introduce a more complex system.
She said: “The main difficulty with these proposals is not the actual NMPA increase, which many savers and advisers will have been planning for since it was first proposed seven years ago. Rather, it’s the overly complex proposals for protected pension ages, which we believe could have unintended consequences that could affect retirees, advisers, and the industry for many years to come.
“It’s unclear why a more complicated system is being suggested now than in 2010, when a larger increase took place with less notice.”
'Administrative nightmare'
Advisers agreed people having different retirement ages could be a challenge.
Toby Bentley, financial adviser at Lathe & Co, said: “It will be interesting to see what wording is included in the government’s plans to prevent further issues.
“Most pensions currently state either that a member can access money from age 55, or from the normal retirement age, and unless carefully implemented, a whole industry might face the administrative nightmare of swathes of pensions that are protected at differing retirement ages.”
Ricky Chan, director and chartered financial planner at IFS Wealth and Pensions, said the proposals were similar to protected minimum pension ages in the past but added they could cause issues for both advised and non-advised clients.
He said: "It would add more complication in advisers’ work to clients as a lower protected minimum pension age could be quite a valuable benefit to some – providers may also need to flag this up so some non-advised clients do not inadvertently lose this benefit when transferring pensions."
Overall, he expects no change in his retirement planning from the age hike.
He said: “It’ll definitely affect advice given to clients as many may still think it’s age 55 when they could access their pensions, so may have plans in the future relying on accessing their pensions.
“But in terms of clients' retirement planning, it probably wouldn’t have much impact as 55 or 57 is still relatively young for most."
The government’s consultation on the proposed pension age increase closed yesterday (April 22).
amy.austin@ft.com
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