The government plans to increase the earliest age pension savers can access their pensions without incurring an unauthorised payments tax charge, known as the normal minimum pension age, from 55 to 57.

The age change will come into force from 6 April 2028.

Legislation will be introduced in Finance Bill 2021-22 to provide a framework of protections and increase the NMPA from age 55 to 57.

The legislation will now protect members of registered pension schemes who before 4 November 2021 have a right to take their entitlement to benefit under those schemes at or before the existing NMPA.

For protected members it reduces the restrictions on retaining a protected pension age following a block or individual transfer.

Pension schemes have to tax sums withdrawn in excess of the tax-free lump sum under PAYE on a month 1 basis and usually applying an emergency code. This is the case even where the taxpayer is only taking a one-off sum.

So, a £20,000 withdrawal where £5,000 is a tax-free lump sum and £15,000 is taxable income will be taxed as though 12 x £15,000 is to be paid in the tax year with 45% tax deducted from part of the payment.

Taxpayers can claim a refund by completing a form P55 for partial encashments, P53Z for whole encashments and P50Z where the whole pot is taken but there is no other income, or via self-assessment at the end of the tax year.

Members of the firefighters, police and armed forces public service schemes will not be affected by this increase.

This measure is expected to have a negligible impact on businesses administering registered pension schemes, HMRC said in its technical note. One-off costs for businesses will include familiarisation with the changes and updating systems to reflect changes to the normal minimum pension age. Additional one-off costs could also include training staff on changes, legal and consultation advice on the provision of a protected pension age and managing a potential communication increase from customers due to general queries relating to the change and requests to transfer funds.