Tom Selby:
Tom Selby is a senior analyst at financial services firm AJ Bell.
Scammers are a plague on pensions, devising increasingly sophisticated ways to defraud hard-working savers of their retirement cash.
Significant efforts have been made to clamp down on scams in recent years, from a ban on pensions cold calling, to new rules which will make it easier for pension providers to block suspicious transfers.
However, unnecessarily complex Treasury plans to increase the minimum age people can access their pension pot from 55 to 57 in 2028 risk handing the initiative back to fraudsters.
What is the Treasury proposing?
Under the proposals, anyone who was a member of a pension scheme which gave them an ‘unqualified right’ to access their pot before age 57 would be able to retain the lower minimum access age.
Furthermore, anyone who joined a pension scheme by 5 April 2023, that offered an unqualified right to a minimum access age below 57 on 11 February 2021, would also be able to keep that lower access age. This would be called their ‘protected pension age’.
When someone transferred from a scheme with a ‘protected pension age’ to one without a protected pension age, they would be able to retain the lower pensions access age on the transferred funds.
Some schemes covering specific professions – including the fire service, police and armed forces – would also be able to retain a lower minimum access age.
Whether or not an unqualified right to access your pension before age 57 exists would be entirely random, based on the wording of scheme documentation written by pensions lawyers six or seven years ago.
Mind-bending complexity
This protection regime will lead to a bizarre situation where someone could have two different minimum access ages – potentially within the same pension scheme.
Such mind-bending complexity will be a gift to scammers, who will inevitably take advantage of the confusion to offer people the ‘opportunity’ to invest their money with them and retain a minimum access age of 55 – before stealing their retirement cash.
Scammers will inevitably take advantage of the confusion to offer people the ‘opportunity’ to invest their money with them and retain a minimum access age of 55 – before stealing their retirement cash
The plans also undermine a number of key Government initiatives designed to make life simpler for savers.
The Department for Work and Pensions’ (DWP) flagship Pensions Dashboards reforms will eventually aim to show people the total value of their retirement pots and the income they might generate from a selected retirement age.
However, the Treasury’s minimum access age proposals will create situations where people can access their pension at different ages – either in separate schemes or within the same scheme.
If someone has chosen a retirement age of 55 but can only take some of their pensions from that age, with the rest not available until age 57, how on earth will that projected income be shown on dashboards?
In addition, the DWP is looking at how to address the problem of people ending up with lots of small pension pots. This could eventually see pension schemes consolidate multiple pots into one on behalf of savers.
If a small pots scheme has a minimum access age of 57, and providers have to consolidate small pots into it which have a protected pension age of 55, it will create a ‘mix and match’ access age for people with the very lowest level of understanding of pensions.
One danger of the Treasury’s proposals is that pension savers could be tricked into fraudulent investment schemes which claim to be able to give them access to their pension sooner
The DWP is also attempting to simplify the annual statements people receive from their pension provider, showing how much their retirement pot is worth.
These statements are also meant to be based on a selected retirement age. If someone can only access part of their pot from that age, and has to wait a further two years for the rest, they’re going to need two different statements. Far from simple.
There is a simpler way
Complicated. Unnecessary. Dangerous. A trifecta of reasons why the Treasury’s minimum access age proposals risk creating an entirely avoidable pensions car crash.
And while 2028 might be a long time away, the current plan is to rush these ill-thought-through reforms into the Finance Bill this year.
At the very least policymakers need to pause, take a breath and reconsider the merits of what they have proposed.
Rarely have I seen all corners of the pensions industry united in condemnation of what should be a relatively simple policy change in the way they have to this.
At the forthcoming Budget Rishi Sunak has the chance to avert disaster and think again.
A much simpler solution is staring him in the face. With the exception of the specific professions outlined by the Treasury, do away with this complex protection regime altogether and increase everyone’s minimum access age to 57 in 2028.
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