Govt should rethink 'ill thought through' NMPA hike, says Quilter

The government should reverse its “ill thought through” decision to change the normal minimum pension age (NMPA) to 57, according to Quilter.

The firm argued that the change, which has been proposed by the government in order to reflect increases in longevity and changing expectations of how long we will remain in work and in retirement, has been put forward with “scant evidence” that it will alter pension savers’ behaviour.

A consultation on the proposals, which are currently slated for April 2028, was launched in February.

Quilter head of retirement, John Greer, said: “We appreciate the theory behind the change to 57 and the government’s concerns around people having enough to live off in retirement. However, if you are worried about the longevity of people’s pension pots and people accessing their savings too early, you would not move the NMPA to 57.

“Looking at the data and it would appear a large number of people with sub-scale pensions simply cash in their pot at the earliest possible opportunity.

"According to the latest retirement income data from the Financial Conduct Authority, 55 per cent of pension plans accessed for the first time are withdrawn fully overall, with 75 per cent of those withdrawals done by people aged 55-64.

“Giving them an extra two years of saving isn’t going to change behaviour and will do very little for their prosperity.”

He also highlighted concerns that the proposals could undo some “initial good work” by the Department of Work and Pensions’ (DWP) Small Pots Working Group, stating that the mooted NMPA rules “effectively remove a benefit should a member wish to transfer to a more appropriate pension scheme”.

This was pointed out as the recent consultation noted that savers could only retain a protected pension age of 55 as a result of a block transfer.

Quilter argued that the Treasury may have underestimated the number of people with an unqualified right to take their benefits at age 55, stating that the change could therefore “pose some unintended complexity to the DWPs efforts to help consolidate small pots”.

Greer said: “This risks leaving people stranded in more expensive or inflexible pensions just to safeguard the age benefit.

“The Pensions Minister himself said ‘scheme members should benefit from an efficient, competitive and transparent workplace pensions system.

"This will continue to underpin our approach to consolidation of small pots and member protection, including charges being controlled effectively.’ As such, the NMPA rule change presents challenges that will need addressed.

“Given early indications suggest a significant number will qualify for a protected age of 55, perhaps the government has underestimated the number of people the change to the NMPA is going to capture, and therefore how complex retirement planning will become in future.

“But essentially, the rules around block transfers complicate things considerably and as such need a rethink if the government is to proceed with this change.”

As alternatives to the proposals, Greer stated that the government should commit to either keeping the current NMPA of 55, or removing transitional protections entirely by hiking all savers to an NMPA of 57.

Greer concluded: “The easiest thing to do is to keep the NMPA at 55 and given the complexities the change introduces, would be the sensible thing for the government to do.

"A number of schemes would breathe a sigh of relief here as it will be challenging to implement and communicate to members.

"It would also prevent the unnecessary further complication of pensions – an industry that already suffers at the hands of difficult to understand rules and legislation.

“If the government is certain it wants to proceed down the road of increasing the NMPA, then it would arguably be better just to move everyone to 57 and do away with any proposed transitional protections.

"This will make the change easier to understand and limit the unintended consequences, although thorough communication will be required for those it has the biggest direct impact on.”

Pensions Age has contacted the DWP for comment.

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