Making the idea of a pension, along with the communication around pensions simpler, has been the focus of a recent raft of consultations, legal and regulatory changes.
As an example, the idea of a simpler annual benefit statement has been floating around the industry for a while. Regulation gives this the footing that most schemes can use to implement this. Pension dashboards too will attempt to show the myriad of benefits we have in the UK in one, simple, way.
The new minimum pensions age
Most of the focus of recent policy has been around helping people find out where they are saving, how much they have and how much it costs. Given the proliferation of smaller pension pots and the issues raised by this problem, this is again an admirable objective. However, recently, the government introduced a new issue, that will make it harder for members, schemes and administrators to understand an individuals’ pension rights; the change in minimum pension age.
From 2028 any member in a scheme that references the earliest age at which pension benefits can be taken will not be able to take their benefits until age 57. However, if the scheme rules state that the member can take their benefits at age 55, then they will still be able to take their benefits at age 55. However, if they transfer the benefits, then to retain the right to take their benefits at age 55 they cannot make any more contributions unless the transfer is a block transfer. Simple. Right?
Why is this a potential problem?
Firstly, the wording is problematic. If the scheme documents state that a member has a right to take their benefits at age 55, they retain this right (as long as they joined the scheme before 3 November 2021). If the scheme documents simply refer to the national minimum pension age, then this becomes age 57 automatically under the new rules.
At the moment, it is not clear what happens in multi-employer trusts, where under a previous membership, an individual had an age of 55, and they get subsequently enrolled with a different employer. Do they retain the rights to take all benefits at age 55, or does the new membership automatically have an age of 57? (if the individual was born after 6 April 1973 – another complication!)
And then there is the issue concerning transfers. Should the right to take benefits at age 55 be considered a safe-guarded right? And how are schemes meant to distinguish between different benefits at different ages, let alone communicate this in a way that members will understand? Are the benefits to be ring-fenced, and if so, what impact does this have on the member?
There has been lobbying from the industry about ways the changes could be introduced that would make them simpler and easier to understand. Despite this, the government are persisting with the legislation as drafted. Additionally, there appears to be no government communication plan at the moment (and we are still sorting out the challenge of changes to women’s state pension ages and how these were communicated).
What can schemes do to prepare?
So what can schemes do now whilst we wait for clarity on the new ruling? You can take a few proactive steps to get your scheme ready for the new pensions age rules;
- Identify what the minimum age is in your scheme. They may be different by section or employer.
- Work out a plan to communicate if a change is required. And if one is not, plan how to explain this to your existing members and why this is different for new joiners.
- Finally, work out how you want to manage any transfers. All so that when someone contacts you to ask, what’s my (minimum) pension age again, you have a plan in place.