Calls grow for govt to adopt a simpler approach to NMPA changes

The government has again been urged to adopt a simplified approach to reducing the normal minimum pension age (NMPA) rather than a “hot mess of complexity”, to avoid inadvertently opening the door to would-be scammers.

The government initially outlined plans to increase the age at which people can access their pension without a tax penalty in February, later confirming that it would push ahead with the proposals, despite complexity concerns, although it did make some amendments in light of industry feedback to help retain protections.

However, industry experts have warned that the process has become overly-complicated, with Canada Life technical director, Andrew Tully, stating that “what should have been a simple process has turned into a hugely complex mess”.

He continued: “If the government believes there are genuine reasons to increase the NMPA to age 57 then that should apply to most people, although there is an argument for an exception for ‘uniformed’ pension schemes.

“This draft legislation gives wider protection, and on a completely random basis rather than being targeted at a specific cohort or age group. We even have the bizarre scenario that a child could take out a pension before 2023 (in a suitable scheme) and protect the ability to take benefits at age 55 in the 2070s. That is nonsensical.

“The NMPA should either be moved to 57 for all, with very limited exceptions, or the government should retain age 55 and re-think its entire policy around minimum pension ages.”

AJ Bell head of retirement policy, Tom Selby, echoed this, arguing that in their attempt to provide ‘protection’ for some people from the proposed rise in the minimum pension access age to 57, policymakers “will cause outlandish confusion for savers”.

In particular, Selby identified five key problems with the plans: the potential for scammers to use pension access age confusion to defraud savers, the increased complexity, the risk for savers being hit with a 55 per cent unauthorised payment charge, an encouraged focus on accessing their fund at NMPA, and the concern that the treasure could fail to achieve its policy objective through the plans.

"Everywhere you look there are holes and problems in these proposals," he stated. "Perhaps most worrying is the risk that, by creating a two-tier pension access system, the government will inadvertently open the door to scammers.

“It is not too late to avoid this madness and we strongly urge the Treasury to step back from the brink.

"Furthermore, there is an alternative way forward which achieves the policy intention and is unbelievably simple – do away with the proposed protection regime and move everyone to a NMPA of 57 in April 2028.”

The Association of British Insurers (ABI) also suggested the adoption of a simpler approach, similar to when the NMPA was increased from 50 to 55 in 2010.

This would mean that the increase to 57 would apply to all, except limited protected pension ages for those who already have them, particularly some public service workers such as uniformed services, and those who already had a protected pension age from 2010.

ABI director of long-term savings policy, Yvonne Braun, commented: “People are living and working for longer so it is right the minimum age you can access your pension will rise to 57 in seven years’ time, in step with the state pension age rising to 67.

"Unfortunately, the government’s proposed implementation maximises the complexity of this change and would create enormous confusion for pension savers.

“Millions would still be able to access their pension at age 55, making the change pointless. Most savers will also have multiple pots at different ages, complicating their retirement planning.

“The ability to access a protected pension age of 55 may drive advisers to recommend switching to their clients, creating arbitrary market distortions. Savers may also leave employer schemes with a NMPA of 57 to access their pension earlier elsewhere, losing the employer contribution."

She added: “We urge the government to rethink their approach and make it much simpler for consumers.

“Being able to access their pension at 57 from 2028 for the vast majority of people is clear, reduces complexity and poor outcomes, and simplifies planning for retirement.”

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