Plot to track down thousands of savers facing delayed retirements due to a massive pension transfer failure
We explain how new pension rules and conflicting HMRC guidance have led to a major blunder - and what's happening next
THOUSANDS of savers may have permanently lost a retirement benefit they were legally entitled to for life following a huge pensions mix-up.
Earlier this year, we revealed how some savers had been left at risk of facing delayed retirements after switching pension schemes.
This was because the scheme they transferred from hadn’t informed them, or their new pension provider, that they had a “protected pension age” of 55, so it may not have been applied to their new scheme.
Experts say pension schemes should tell savers if they would be giving up a benefit by transferring their pension to another scheme.
And HMRC guidance says that for members transferring between schemes, scheme providers should be able to explain if a transfer will cause a change to the age at which they can begin drawing their pension benefits.
But The Sun can now reveal the scale of this issue is far bigger than previously thought.
We have now learned that anyone who has transferred their pension since 4 November 2021 and had this benefit may not have been informed, while the scheme they transferred to was also not told.
It is understood this was due to new rules being introduced too quickly for pension schemes to put new processes in place, as well as confusion caused by conflicting HM Revenue & Customs (HMRC) guidance.
The pensions industry is now running a huge exercise to track affected savers down – but this has revealed that in some cases, it’s too late to reverse the loss of the benefit.
As a result, thousands of people may have given up their protected pension age for good without their knowledge.
What’s the issue?
In 2028, the age at which you can access your retirement savings will rise from 55 to 57. This is known as the “normal minimum pension age” (NMPA).
But since November 2021, many savers have had a legally “protected pension age” of 55 attached to their pension, meaning they will continue to be able to take their pension cash at 55 past 2028.
You might want to take your tax-free cash as early as possible if you’re struggling financially, for example if you need to pay off debts.
Recent research by Legal & General found a third of women and a fifth of men take their full 25% tax-free pension lump sum at 55.
Aviva, Scottish Widows and L&G are among some well-known providers which offer a protected pension age of 55 for some of their schemes.
Anyone who has this benefit attached to their pension cannot legally “lose” it unless they knowingly give it up, and it should follow them for life.
But although this protected retirement age has been in place since November 2021, The Sun has learned that many pension schemes did not have a way of passing this information on during a pension transfer process until at least December 2023.
And, many schemes don’t even have the facility to offer a “protected pension age”.
So, those who have moved to schemes which don’t offer this since 4 November 2021 may have given up the benefit without realising – despite it being a legal right.
As well as issues getting a system in place to pass the information on, it is understood that the mix-up was caused by conflicting HM Revenue & Customs (HMRC) rules around protected pension ages.
Legally, savers cannot lose a protected pension age. But, under separate HMRC guidance, pension schemes do not legally have to offer a protected pension age.
So, schemes that don’t offer this benefit aren’t obliged start offering it, or honour an existing benefit, if a saver transfers to them.
And even if they wanted to, experts say it is too complicated to do so in many cases.
Based on the latest pension transfer figures, thousands of savers may have been affected by the blunder, and this figure has been backed up by those with inside knowledge of this situation.
For some savers, being able to access this pension pot – which is their own money – at 55 will make a big difference to them
Steve Webb
The ‘sweep up’ exercise to fix it
It is understood that the pensions industry is now undertaking a so-called “sweep up” exercise to track down affected savers and pension schemes and notify them that there was a protected pension age on their previous scheme.
This major operation is being managed by several pensions trade bodies.
The hope is that some schemes which have accepted transfers since November 2021 will start honouring the protected pension age from the saver’s previous scheme.
As part of the process, which began in July, pension schemes have created spreadsheets where they are manually keeping track of everyone who has transferred out with a protected pension age since November 2021 and then sending this information to the scheme they transferred to.
While the aim is that some savers will get the benefit back, it is understood there will “inevitably” be some savers who will have permanently lost it and are only now being informed.
And we have learned that a recent meeting with the industry held in August, some pension firms said they won’t be able to reverse the loss of the benefit, while others said they’re not in a position to receive information about hundreds of past transfers.
As a result, those affected will not be able to access their pension for an extra two years.
A spokesperson for the Association of British Insurers (ABI), which is helping coordinate the sweep up exercise, told The Sun: “The changes to the NMPA are incredibly complicated and introduce further confusion into an already complex system.
“Through the ‘sweep up’ exercise, we’re working with other industry bodies to help our members safely share the data of individuals who have since transferred out of their pension, so that their new provider knows if they have a protected pension age.”
Steve Webb, former pensions minister and partner at consultancy LCP, said: “Many people build up relatively small pension pots and cash them out at the earliest opportunity.
“For some savers, being able to access this pension pot – which is their own money – at 55 will make a big difference to them, and if they had the right to access the money at 55, they should not lose it simply because they consolidated their pension pots, which is something the government is generally in favour of.”
While this mess is largely of HMRC’s making, it was up to pension providers to look out for their customers’ best interests
Tom McPhail
Why did things go wrong in the first place?
Under HMRC guidance, you can lose a protected pension age if you choose to switch to another pension that doesn’ t offer a protected pension age.
But, experts say savers should always be notified if they are giving up a benefit like this before the transfer process is started.
Yet, the pensions industry has been facing unprecedented regulatory change, and it is understood it was simply unable to get a system in place to pass information about a protected pension age on in time.
Tom McPhail, director of public affairs at The Lang Cat, told The Sun he believes the situation is largely down to HMRC “making a mess” of implementing the new NMPA.
“However, while this mess is largely of HMRC’s making, it was up to pension providers to look out for their customers’ best interests and they should have made sure to inform customers they had this benefit before transferring them,” he said.
“We [in the pensions industry] have seen some evidence of people taking out their pension tax-free lump sums at 55, but people who might have wanted to do this post-2028 and have lost this benefit now can’t.”
What comes next for those affected?
Experts told The Sun that the only way savers could get the benefit back is if the government reverses the planned 2028 changes to the NMPA or introduces new legislation to ensure schemes retrospectively honour the protected age.
Renny Biggins, head of retirement at The Investment and Savings Alliance (TISA), said: “The rules and guidance relating to the increase of the NMPA to 57 in 2028 are complicated, and will result in members not receiving consistent outcomes.
“Given the change is not effective until 2028, one might optimistically hope that the current government reverts back to a minimum pension age of 55, which would restore equality for [pension scheme] members.”
He added: “The next few years will see some positive, big scale changes happening in the pensions landscape.
“It is crucial that future change is undertaken in full collaboration with industry to ensure all perspectives, consumer impacts and potential unintended consequences can be identified and considered.”
If you’re not sure if your pension scheme has a protected pension age of 55, ask your provider. They should be able to tell you.
New guidance from the Pensions Administration Standards Alliance, released last month, said that going forward pension scheme administrators and trustees should “identify scheme members with a Pension Protected Age (PPA) who will be impacted by the change in NMPA”.
HMRC declined to comment.
Other pension blunders
PENSIONS have been the subject of numerous blunders that have left savers worse off over the past few years.
Steve Webb, partner at LCP, has uncovered a number of errors related to the state pension where retirees were underpaid.
Thousands of married or divorced women born before 1953 had their state pension payments calculated incorrectly.
And others who had Home Responsibilities Protection may have had this missing from their National Insurance records, affecting their state pension entitlement.
The DWP and HMRC are now in the process of working to find those affected and correct their records.
And last month, Mr Webb found thousands of people could be owed increases in Universal Credit after they were wrongly denied having their pension payments deducted from their wages before calculating their benefit entitlement.
A DWP spokesperson has previously said: “This Government remains committed to ensuring that historical errors are corrected and our priority is ensuring pensioners get the financial support to which they are entitled.”