Pension age steps closer to 57

The government has published draft legislation to raise the minimum age for drawing pension benefits from 55 to 57.

At present, the normal minimum pension age (NMPA) at which you can draw benefits from a pension scheme is 55. That age ceiling took effect in April 2010 and was subject to a limited range of transitional rules if you previously had the right to draw pension benefits earlier than age 55.

Back in February, the government published a consultation paper on raising the NMPA to 57. The paper came as no surprise, except for the time it took to emerge. A NMPA of 57 was originally announced in 2014, but then apparently lay dormant until about a year ago when the Treasury was forced to confirm it in response to a question posed by the Chair of the Work and Pensions Select Committee.

The consultation paper has now been followed up with draft legislation that will appear in the Finance Bill 2021/22. Although only one digit is being changed – 5 to 7 – that draft legislation stretches to just over three pages:

It confirms that the new NMPA will take effect on 6 April 2028, by which time the State Pension Age will have risen to 67.
The NMPA will remain at 55 for members of “uniform services” (i.e. armed forces, police and fire services).
There is no phasing: if you were born on 5 April 1973, in theory you can draw benefits on your 55th birthday but leave it 24 hours and you will have to wait another two years, unless you can take advantage of the various transitional provisions.
The existing transitional provisions for the change to 55 remain in place.
A new set of transitional provisions will allow pre-57 access if, on 11 February 2021, your pension scheme rules gave you an unqualified right to draw benefits before age 57. To qualify, you must have joined the scheme by 5 April 2023.

In practice, retirement at age 55 or even 57 is a huge challenge financially. For example, the rate for an RPI-linked annuity at 55 is about £16.50 per £1,000 of pension fund, so even a fund equal to the current lifetime allowance (£1,073,100) would not produce £18,000 of inflation-proofed income.

As with all pension changes, the devil is very much in the detail.

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