The NMPA is changing — is your scheme ready?

These changes were introduced by the Finance Act 2022 and will increase the NMPA, from 6 April 2028, from age 55 to 57 coinciding with the rise of state pension age (SPA) to age 67 (which is also under review).

The NMPA is the earliest age that members of registered pension schemes can normally access their benefits without triggering an unauthorised payments tax charge on both the individual and the scheme. For many schemes, whether the changes impact them will depend on the precise wording of the scheme rules which we consider in more detail below.

The exceptions

The increase to NMPA will not apply in three limited exceptions:

• If the member meets the criteria for retiring on ill health grounds;
• If the member has an earlier protected pension age (PPA). Broadly speaking, this applies in limited circumstances where the member has an unqualified right to retire earlier than NMPA under the scheme rules; and
• Certain public services schemes are exempt (including firefighters, police and armed forces).

Under the current NMPA regime, members can retire earlier than NMPA on ill health grounds or if they have a PPA. However, there are some differences between the existing and the new PPA regime.

The Protected Pension Age regime

HM Revenue and Customs published guidance on 17 January 2022 which confirms that the legislation provides a framework for an earlier PPA if, on or before 4 November 2021, either the member:

• Has an unqualified right to retire before age 57 under the scheme rules (which were in place on 11 February 2021); or
• Was in the process of a substantive transfer to a scheme with an unqualified right to retire before age 57.

A member will only have an unqualified right in certain circumstances including, for example, if the member can retire early without the trustees' and/or the employer's consent. Ultimately, legal advice should be sought as whether a right is unqualified will boil down to how the rules have been drafted.

Where the member has an unqualified right the member will have a PPA of less than age 57 and the tax rules will apply to the member based on their PPA.

Considerations for trustees

Scheme rules

Trustees should be conversant with their scheme rules and obtain legal advice on the NMPA under the scheme rules which often provide for early retirement, subject to the consent of the employer and/or trustees. If the provisions are subject to consent, then the member does not have an unqualified right and the member will be impacted by the change to the NMPA (which will increase to age 57).

The trustees must also consider any differences between the right to early retirement rules for active and deferred members, as different members might be treated differently.

The change to NMPA could result in some members enjoying a PPA of 55 for transferred-in benefits, but a NMPA of 57 in relation to any further benefits accruing in the receiving scheme (depending on whether the transfer was on an individual or bulk basis). This is likely to add complexity to the administration of a scheme. The trustees and administrators must ensure that the administration system clearly records the age that a member can draw their benefits, and communication of this to the members is important. It is, therefore, worthwhile discussing and agreeing whether schemes should accept transferred-in benefits with a new (or existing) PPA.

Member communications

Trustees and administrators should seek legal advice on whether a member communication should be issued on the changes to NMPA and, if applicable, whether retirement packs need updating. Whilst the change is not coming into effect until 2028, trustees need to be aware of the change as it's something that members might potentially ask about, especially now the Finance Act 2022 has received Royal Assent.  

Future changes

The government consultation paper has suggested that further increases are planned that would ensure NMPA remains fixed at ten years below SPA thereafter. It's likely that in the coming years we can expect to see the NMPA rise again. The pensions landscape is constantly evolving. The best way for trustees to be ready for what the future might hold is to seek regular advice and keep a watchful eye on the latest developments.

Paul Ashcroft is an associate and Gemma Williams is a trainee solicitor at Wedlake Bell