The Association of British Insurers has called on the government to scrap its “complicated”, “arbitrary” and “confusing” plans to raise the normal minimum pension age “until something fit for purpose” has been developed.
In a blog post published today (September 14), coinciding with the end of a consultation into raising the normal minimum pension age from 55 to 57 by 2028, former ABI tax adviser Dan Gallon criticised the government’s plans, saying they were “too complicated and would create too much confusion for the tens of millions of people affected.
“They will not simply be able to answer the question ‘at what age will I be able to access my pension’”, he wrote.
The government plans to raise the age at which people can access their private pensions from 55 to 57 to align it with the increase in the state pension age.
But not all pensions will be caught up in the rules as some might offer their members the right to take their benefits at the earlier age.
While the state pension age increase is being implemented in a clear and simple way, the private equivalent "is neither simple nor fair and it is going to be incredibly complicated”, Gallon noted.
Adding to confusion is the fact that some scheme members will be able to access their pensions at the current normal minimum pension age of 55, as long as the scheme they are in has this written into its rules.
“HMRC have indicated that where pension schemes rules include a reference to benefits being taken from age 55, this would be an unqualified right; however, a reference to taking benefits from ‘normal minimum pension age’ would not meet the requirement,” Gallon wrote.
“There will also be a ring-fencing where funds in a pot with protection are transferred to a new pension scheme, with funds transferred (and any investment income on those funds only) accessible at 55 whereas any new payments in would only be accessible at 57.”
As a result, he said, it would not be clear to many individuals whether they can access a particular pension at 55 or 57, while taking advice from independent financial advisers and guidance from pension providers and the Money and Pensions Service will be much more difficult, as they will often be unable to provide “a clear recommendation either due to uncertainty of the rules and future requirements or due to regulatory requirements on offering advice”.
Scheme rules may also not “fit neatly” into HMRC guidance, meaning a great deal may depend on court cases or Ombudsman decisions which will take a long time to arrive.
Gallon also warned the move, as presently formulated, would conflict with other government priorities, for instance the rationalisation of small pots, which may be discouraged should one of those pots have a protected pension age.
'A hugely complex mess'
The problems extend to the transition to the new regime, since it will create a window to lock in the minimum pension age of 55.