From 6 April 2028 the earliest age from which benefits can normally be taken from a pension scheme will rise from 55 to 57. HMRC has recently published information about the transitional provisions that will apply in relation to members who are aged 55 or 56 at the date of the change. We take a look at how the transitional provisions will work.
HMRC’s Pension schemes newsletter 180 provides information about the transitional provisions that are likely to apply in relation to the increase in normal minimum pension age (NMPA) from 55 to 57 with effect from 6 April 2028. (NMPA is the earliest age from which a member is generally permitted to receive benefits in the absence of ill-health.) Without transitional provisions, members who start to receive their benefits at age 55 or 56 in line with the current NMPA, but who will not have reached age 57 by 6 April 2028, could find their benefits suddenly becoming unauthorised due to the member not having reached (the new) NMPA.
HMRC says that a member who has started to receive a scheme pension before 6 April 2028 aged 55 or 56 will be able to continue to receive the pension as an authorised payment after 6 April 2028. However, if the member wishes to start receiving a new pension on or after 6 April 2028, he/she will not be able to do so until age 57.
Where the member becomes “entitled” (within the meaning of the Finance Act 2004) to a scheme pension or lifetime annuity before 6 April 2028, but the first payment is not made until after that date, the payments will be authorised payments. It should be noted that “entitlement” within the meaning of the Finance Act 2004 broadly requires the member to have done everything required to bring the pension into payment. Simply having a right to receive a pension from a particular age does not give rise to “entitlement” for Finance Act 2004 purposes.
Where a member is “entitled”, within the meaning of the Finance Act 2004, to receive a pension commencement lump sum (PCLS) before 6 April 2028, but the payment is not made until after that date, the transitional provisions will treat the member as having reached age 57 immediately before the lump sum is paid, meaning that the payment will be authorised. Entitlement to a PCLS for Finance Act 2004 purposes generally arises immediately before “entitlement” to the linked scheme pension or lifetime annuity.
From 6 April 2028, payment of an “UFPLS” (a type of lump sum that can be paid where benefits are money purchase and is not linked to a pension) will only be authorised if the member has reached age 57.
The definitive transitional provisions will be set out in regulations that have yet to be published. HMRC warns that the transitional provisions contained in the newsletter are “provisional and subject to change”.
Trustees should ensure that members seeking to take benefits before age 57 understand the importance of providing the information necessary to receive the benefit.
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