Tom Selby
Tom Selby works as a senior analyst at AJ Bell, a financial services company.
Scammers are a major problem in pensions. They find new ways to defraud hardworking savers out of their retirement funds.
Recent years have seen significant efforts to combat scams, including a ban on cold calling pension providers and new rules that will make it easier to block suspicious transfers.
However, the Treasury’s unnecessarily complicated plans to raise the minimum age that people can access their retirement pot from 55 years to 57 years in 2028 are a risk to fraudsters.
What is the Treasury proposing for us?
According to the proposal, anyone who was a member in good standing of a pension plan that granted them an unqualified right’ to access their pot prior to age 57 would be eligible to retain the lower minimum age.
Anyone who joined a pension plan by 5 April 2023 that provided an unqualified right at a minimum access age of 57 on 11/02/2021 would be eligible to keep that lower age. This would be their ‘protected retirement age’.
If someone transfers from a scheme with an “protected pension aged” to one without, they will be able to keep the lower pensions accessibility 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.
It would be random to determine whether or not you have an unqualified right of accessing your pension before age 55 based on the language used in pensions documentation 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
These plans also threaten a number key Government initiatives that were intended to make saving easier.
The flagship Pensions Dashboards reforms of the Department for Work and Pensions (DWP), will eventually aim at showing people the total value and income they might earn from a particular 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 chooses to retire at 55, but cannot take all of their pensions until that age, how will the projected income be displayed on dashboards?
The DWP is also investigating how to deal with the problem of people having small pension pots. This could lead to pension schemes consolidating multiple pots into one for savers.
A small pots scheme must have a minimum age of 57 and providers must consolidate small pots that have a protected pension age 55 into it. This will create a mix and match’ access age for those with the lowest level of understanding about pensions.
One danger to the Treasury’s proposals for pension savers is that they could be lured into investing in schemes that claim to be able give them access to their retirement sooner.
The DWP also aims to simplify annual statements that pension providers send out to their beneficiaries, which show how much their retirement savings are worth.
These statements can also be based on a specific retirement age. Two different statements are required if a person can only access a portion of their pot and must wait for the rest to be accessed. It’s not easy.
There is an easier way
It is complicated. Unnecessary. Dangerous. The Treasury’s minimum access age proposal could cause a fatal pensions car crash.
While 2028 might seem far off, the current plan is for these poorly-thought-through reforms to be included in the Finance Bill this year.
Policymakers should at the very least pause, take a deep breath, and reexamine the merits of the proposals they have made.
Rarely have you seen the pensions industry from all sides united in condemnation for a relatively simple policy shift in the way they have.
At the Budget Rishi sunak, you have the chance to save the day and start thinking again.
He is in for a much simpler solution. Except for the Treasury-listed professions, eliminate this complicated protection system and raise everyone’s minimum age to 57 by 2028.
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