The Government’s plans to revamp the point at which we can start to access our pensions have come in for a lot of criticism this week, with warnings that they are little more than a ‘complex mess’
At the moment there is a ‘normal minimum pension age’ (NMPA) of 55.
This is the age at which you can access the money you’ve saved up in your private pension, without having to deal with some painful tax charges.
There are certain exceptions in place which allow some people to access their pension earlier, called the protected pension age.
The Government has previously announced that it wants the NMPA to increase to 57 from 2028, given the age at which we can start receiving our State Pension is also due to rise around that time.
However, it also said that it wanted to keep 55 as a protected pension age for the many pension schemes where it is written into the scheme rules that savers can access their pots from the age of 55.
In other words, the age at which you could access your pension would depend entirely on where you were saving that pension.
Widespread criticism
Unsurprisingly, rather a lot of opposition has emerged against the proposals, and with good reason.
First and foremost, there’s a question of fairness.
It’s bonkers that we can end up with what is effectively a two-class pension system, where you may find that getting money out of your pension is tougher than for your friends or family, simply because of the pension scheme you have signed up for.
If there is to be a minimum pension age, then it really needs to be as universal as possible, rather than being handled akin to the fast passes at Disney World.
Exceptions need to be in place for a good reason, rather than handed out on what is effectively a random basis.
Andrew Tully, technical director at Canada Life, was spot on when he said: “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.”
Hurting our pension saving
Because this change isn’t just irritating from a fairness point of view, it can also have a real impact on the way that we save towards retirement.
Let’s be honest, a big factor in why it can be tough getting people to pay into a pension in the first place is because they are utterly mystifying for many people.
Having seemingly arbitrary ages at which you can access the money you save isn’t going to do much good on that front.
But for those who try to engage with their pension saving, having such variable NMPAs will inevitably influence behaviour.
As the Association of British Insurers has pointed out, there would effectively be an incentive to transfer your pension pot to a scheme with a protected pension age of 55, even if it’s not necessarily the most appropriate for you.
People could walk away from their existing pension schemes, and the benefits they enjoy ‒ perhaps including the additional contributions from their employer ‒ and instead save in a rival scheme, simply because of the lower age of access.
On top of that, the workplace pension scheme means that many of us will be reaching retirement with a handful of different pensions rather than a single scheme, and so could end up with different pension ages for different pots.
The whole thing is a complete mess that only makes planning for retirement harder.
Providing an opportunity for scammers
It’s also important to recognise that the proposed changes will provide scammers with yet another boost.
It’s already very clear that scammers have benefitted from the pension freedoms introduced a few years back.
The fact that we have more say over how our pension pots are handled has made it much easier for smooth-talking scammers to convince people to hand over their pots or to invest in nonsense assets.
And this NMPA farce could deliver another way for them to talk us out of our cash.
As Tom Selby, head of retirement policy at AJ Bell, points out, they may look to create fraudulent scheme documentation which makes it appear that a protected pension age of 55 is held, and use that to encourage savers to transfer their pots to the scammers.
“It will be extremely difficult for someone to know whether or not the documentation is legitimate,” he adds.
These NMPA proposals are a classic case of trying to have your cake and eat it when it’s simply not possible to do so.
I don't believe this fudged increase serves any benefit and actually puts pension savers at risk.