How a change to the UK pension age could impact on your retirement planning

Category: Australia & News

The UK government has recently published draft legislation that will impact on when you can start taking money from any UK pension arrangement.

In April 2028, the normal minimum pension age (NMPA) on UK pensions will increase from age 55 to 57.

Read about the reasons for the change, and how it could impact on your own retirement planning.

Why the change is being made

The planned increase to the NMPA has been driven by several factors:

  • We are living longer, and pension ages need to reflect this
  • The UK State Pension Age is going up
  • Working patterns are changing
  • The government want to encourage people to save more for their retirement.

From 2028 onwards, the government’s intention is that the NMPA for private pensions should be 10 years below State Pension Age, although they are not automatically linking NMPA increases to State Pension Age increases at this time.

The impact on UK pensions

The current NMPA will apply if you were in a pension scheme in February 2021 that gives you the right to take pension benefits before age 57. This includes some statutory defined benefit (DB) schemes such as the police and fire brigade schemes, which allow scheme members to take benefits prior to age 55, subject to length of service.

Moving out of such schemes may result in the loss of this preserved NMPA. While this may not be critical for most people, it is an additional consideration if you are thinking of transferring your UK pension.

Although the changes officially don’t come into force until April 2028, you should be aware the government are allowing scheme administrators to make the changes prior to April 2028 if they find it more convenient.

The administrators are obliged to inform you of any changes like this. If you think the changes could impact on you, it’s worth making sure your administrator has the correct contact details.

How you the changes could impact on you

Clearly, if you’re an expat Brit living in Australia and planning to retire here, these changes could well impact on your retirement planning.

Likewise, if you’re Australian and have worked in the UK for any length of time, it’s likely you’ll have accrued pension benefits in the UK and could also be affected.

Anyone born after 6 April 1973 may therefore be affected by this change, delaying their ability to access their UK or ex-UK private pension funds.

Importantly, you’ll need to take these changes into account if you’re thinking of transferring your accrued UK pension to an Australian scheme. Subject to eligibility, you’ll do this through a qualifying recognised overseas pension scheme (QROPS).

Transferring your UK pension to a QROPS

A QROPS is an overseas scheme that has been registered and approved with HMRC to accept UK pension transfers to the fund.

This allows you to transfer your accrued UK pension to an Australian Self-Managed Superannuation Scheme (SMSF) that is QROPS registered.

Be aware however, that not all UK pension arrangements can be transferred. For example, you cannot transfer the following pensions to a QROPS:

  • Unfunded public sector schemes
  • Defined benefit pensions in payment
  • Your UK State Pension.

The current minimum age you can be eligible for a QROPS is 55. The minimum age at which you can then start to draw income tax-free from your QROPS is 60, subject to eligibility.

The minimum age of 55 for QROPS is uncertain

At the current time, we’re unsure as to how the increase in the UK NMPA could impact your future ability to transfer a UK pension to an Australian QROPS.

There is clearly a strong possibility that the UK government will want to equalise the minimum QROPS age with the new NMPA of 57 after 2028.

We’ll keep a close eye on the situation and, in the event of a proposed change, we’ll provide you with full details in a future article.

It’s possible that some transitional arrangements may be introduced between now and 2028. Again, if this is the case, we’ll ensure we publish an article outlining the implications and steps you should be taking.

Get in touch

If you’re thinking of transferring your UK pension to an Australian scheme, the time to start thinking about it is now.

Get in touch to find out how we can help you, or if you think you’ll be impacted by these changes.