Your Pension and You

Normal Minimum Pension Age: What’s Changing?

Normal minimum pension age (NMPA) is currently 55 and it’s usually the earliest age at which pension savers can access a workplace or personal pension without incurring an authorised payments tax charge.

The NMPA will rise to 57 from 6 April 2028, as the government looks to accommodate increased life expectancy and longer working lives. The change broadly coincides with the rise in state pension age to 67.

Once someone reaches the NMPA, there are a range of options on how to access pensions savings. For defined contribution schemes, options include taking a tax-free lump sum of 25% of fund value and then buying an annuity with the remaining fund, or using income drawdown. Annuities, or monies received from an income drawdown fund, are taxable income in the year of receipt.

Scheme Pays

In an area of interest to some higher earners, there are forthcoming adjustments to the ‘Scheme Pays’ rules. Scheme Pays may be relevant where annual savings into a pension go over the annual allowance (AA).

The AA limits how much tax relieved pension saving it’s possible to make in a tax year and it usually £40,000. Where pension provision exceeds the AA, an AA tax charge applies.

From 6 April 2022, there is change to the time limits and procedures when a request is made for the scheme to pay in relation to an earlier tax year.

The measure has retrospective effect from 6 April 2016.

Outlook Wintry?

In other headlines, the lifetime allowance (LTA) has been frozen £1,073,100 until April 2016, with the triple lock on the state pension put on ice for 2022/23.

The LTA is the maximum figure for tax-relieved savings in a pension fund. Where the value of the scheme is more than this when benefits are drawn, a tax charge can occur. This is 55% of the excess, if taken as a lump sum and 25% if taken as a pension.