Changes to state pension age – some pensions pitfalls to look out for

For as long as most of us can remember, the state pension age (SPA) has been 65, but as of September 2020, it became 66 for both men and women who have not already retired (for state pension purposes). It is set to go up again to 67 and 68 in future¹, depending on the person's date of birth. Whilst there has been lots of focus on the impact on women born in the 1950s, the change in SPA also has an immediate and practical effect on employers' pension obligations in certain instances, which employers will need to take note of in complying with those obligations.

A couple of areas where employers could get caught out by the change are:

First, automatic enrolment

One of the conditions for a person to be eligible for automatic enrolment is that they have not reached SPA, so the change in that means that someone could now be eligible to be auto enrolled up to age 66 (and 67 etc.in future). As automatic enrolment systems may currently be set to an age 65 cut off point for eligibility, it is important to ensure that those systems have been updated to reflect the increased SPA for both men and women.

Unless they have already done so, employers may want to check that anyone in between age 65 and 66 is enrolled (unless they have formally opted out or are not eligible for an alternative reason). When carrying out any such checks, remember that the increase was phased in so some employees will have had a state pension age in between 65 and 66. For example, someone born on 5 August 1954 will have reached state pension age on 6 May 2020 when they were aged 65 and 9 months.

For details on the precise date someone reaches state pension age, see here.

It is important for employers to get their analysis of automatic enrolment eligibility right to avoid Pensions Regulator fines.

Second, life assurance policies

These policies may have eligibility based on a specified age of 65 (linked to the previous SPA) You may wish to extend the cover provided up to SPA (as opposed to it being just up to a specified age) to avoid disputes. Extending in this way will not impact any beneficial tax treatment that payments may attract as beneficial tax treatment is available up until age 70.

If you would like any more information about either of these points please contact Hadassah Shulman.

¹ The system is complex and the state pension age is calibrated generally according to the period in which the person's date of birth falls. So, for example, anyone born between 6/4/60 to 5/5/60 will reach state pension age at 66 and 1 month and anyone born between 6/5/60 to 5/6/60 will reach state pension age at 66 and 2 months.