Governance

Watson Wyatt in pension age warning

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Governance
Written by Roberta Murray   
Monday, 16 November 2009

Schemes must act now to meet minimum retirement age changes.

 

Watson Wyatt Worldwide (NYSE:WW) have warned UK Pension schemes that they should act now if they are to allow members under age 55 to retire ahead of the normal minimum pension age (NMPA) increasing in April next year from age 50 to 55.

Watson Wyatt estimates that the required processes, particularly for defined contribution (DC) members, could take up to three months from when a member requests a quotation, especially where members are slow to reach decisions and return key documents.

Pension schemes should consider highlighting the changes before the end of this calendar year to ensure members who may wish to retire before age 55 act swiftly.

Where consent has been given, members should really be making their decisions as soon as possible in the new year and certainly before March.

In the Finance Act 2004, the Government introduced legislation to increase the minimum age at which members of a pension scheme could in normal circumstances start to take their pension from age 50 to age 55. This will take effect on April 6, 2010.

According to Watson Wyatt, for both defined benefit (DB) and DC arrangements, schemes need to prepare well in advance in order to be on top of communications and administration ahead of the April deadline.

For DC arrangements, the process can be particularly complicated because precise fund values need to be known in advance (including receipt of final contributions) so that a lifetime annuity can be purchased by April 1, before the Easter public holiday.

The legislation is geared towards ‘entitlement date’ and this does not arise until the money is passed to the provider.

As a result, it will be challenging, and in some cases impossible, to ensure that entitlement arises before April 6 for members retiring under the age of 55 shortly before the change.

“This will be an extremely important issue for those scheme members who are contemplating retiring before age 55 and do not have protected NMPAs,” said Richard Sard, a senior consultant at Watson Wyatt.

“The process unavoidably takes several weeks, and in some cases months, so schemes need to act now to ensure members are fully aware of their options and the potential consequences of delay. If the necessary steps are not taken in time, members may not be able to take their pension until they reach age 55. Companies should also consider the practical challenges of ensuring that their administrators are in receipt of the final contributions for approved retirees, some weeks in advance of April 1.”

 
 
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