Guide Protected pension age before 6 April 2028

If a member of a personal pension scheme or a retirement annuity contract was in a prescribed special or hazardous occupation and had a right to take pension benefits before the NMPA applicable on 5 April 2006 (age 50), then this right may be protected providing certain conditions are met. The minimum pension age that applied as at 5 April 2006 becomes the individual’s protected pension age, and no unauthorised payment charges will apply if and when they take pension benefits at, or any time after, their protected pension age.

The conditions to be met are:

• the right to take pension benefits before the age of 50 (minimum pension age applicable at 5 April 2006) was ‘unqualified’ – in other words no one else needed to agree to the member’s request, and
• the member’s occupation was one prescribed by HMRC regulations*, and
• the member becomes entitled to all of their uncrystallised pension and lump sum rights under the scheme at the same date.

*  A list of the prescribed occupations for the purposes of protecting the rights to take pension benefits before age 50 under a personal pension or retirement annuity contract can be found in the HMRC guidance.

Where a member of an occupational pension scheme or section 32 policy had a right on 5 April 2006 to take their pension benefits before age 55, this right is preserved in certain circumstances. The member’s normal retirement age as at 5 April 2006 will be their protected pension age, and benefits won’t be treated as unauthorised if they are taken at or after the protected pension age.

The conditions to be met are:

• the right to take the pension benefits before the age of 55 is ‘unqualified’ – in other words no one else needs to agree to the individual’s request, and
• the right was set out in the governing documentation of the scheme or plan on 10 December 2003, and that right was then conferred on the member or would have been had the individual been a member of the scheme or plan on that date, and
• the individual becomes entitled to all of their uncrystallised rights under the scheme or plan at the same date

An example of what an unqualified right could be is where a scheme allows deferred members to take benefits from age 50 without needing to obtain consent from the trustees or employer. The same scheme may not allow active members to take benefits early without trustee or employer consent so it is only the deferred members that would be treated as having a protected pension age.

From 6 April 2024, the lifetime allowance was replaced by two new allowances  the lump sum allowance (LSA) and the lump sum and death benefits allowance (LSDBA).  Tax-free payments at a relevant benefit crystallisation event (RBCE) will reduce these allowances.

Where an individual has a protected pension age lower than 50, any tax-free payment arising on an RBCE at, or any time after, their protected pension age (other than on grounds of ill-health), will reduce their LSA and their LSDBA.  The reduction is 2.5% for each complete year between taking the benefits and the NMPA in force at the time of the RBCE.

Normally, there will be a corresponding decrease in the maximum pension commencement lump sum available to the individual, which will be based on the standard LSA (ie, no account is taken of any protection in place).   In contrast, any LSDBA reduction is based on the individual's protected amount (if they have one) rather than on the standard LSDBA.

You can read more about these allowances here.

There are members of certain statutory pension schemes, prescribed by HMRC, with a protected pension age who are not subject to a reduction in these allowances when they take their benefits before the NMPA. The prescribed schemes generally apply to soldiers, firemen and policemen.

As well as meeting the eligibility conditions for a protected pension age to apply and be maintained, members with a protected pension age should also be aware of the following main situations that may lead to a loss of the protected pension age and potential exposure to tax charges.

1. Partial crystallisation of benefits under a scheme
2. Transfers
3. Where protected pension age originally resulted from membership of an occupational pension scheme or a section 32 policy, the protected pension age will be lost if the member is employed or re-employed by certain employers after taking benefits

These points are covered in more detail below.

Regardless of these situations listed above, a protected pension age will be lost where the main reason, or one of the main reasons, for benefits being taken early is to avoid paying tax or national insurance contributions. 

1. Partial crystallisation

When an individual with a protected pension age takes their benefits, they must become entitled to all of the benefits under the same registered pension scheme on the same date in order for the protection to be maintained. Becoming entitled to pension benefits means a scheme member has the right to take pension benefits without having any further requirements to fulfil, e.g. forms completed, permissions from trustees in place etc.

If an individual only crystallises part of their pension benefits that have a protected pension age under a scheme, the amount of those benefits will be subject to unauthorised payment charges if they are taken before the NMPA.

2. Transfers

The right to a protected pension age is lost if a transfer of the member’s pension benefits is made to another scheme (or a subsequent transfer is made from that receiving scheme to another scheme, and so on) unless:

• (in each case) the transfer qualifies as a ‘block transfer’,
• the transfer is protected under the special protection rules that apply on winding-up, or
• the transfer is to a scheme under which the individual already has a protected pension age (See 2.3 Other transfer considerations).

These rules apply to all transfers, including transfers to Qualifying Recognised Overseas Pension Schemes (QROPS), except transfers of crystallised rights such as drawdown to drawdown transfers (see 2.2 Drawdown and transfer).

2.1 Block transfer

A transfer is a block transfer if:

• all of the funds relating to the individual and at least one other person under the same scheme are transferred in a single transaction to another registered pension scheme, and
• the individual was not a member of the receiving scheme before the transfer was made, or they have been a member for no longer than 12 months before the date of the transfer. Where an existing membership relates to a rebate-only personal pension plan that started before 6 April 2006, the 12-month rule can be ignored (See also 2.3 Other transfer considerations)

Winding-up protection is available where the original scheme that provided the protected pension age winds up and the member’s benefits are transferred to a section 32 policy. A subsequent transfer to a section 32 policy will also be protected where the transferring section 32 policy is being wound up.

Similarly, members who have their policy assigned to them on scheme wind up will have the same protection for their protected pension age as those whose benefits are transferred to a section 32 policy.

Following a block transfer, a transfer on scheme wind-up, or on assignment, the individual can keep the protected pension age that applied in the original scheme on 5 April 2006 as long as all conditions are met..

2.2 Drawdown and transfer

Unless the transfer is a 'block transfer', a protected pension age will be lost on transfer. This used to also apply to transfers of drawdown pensions and meant that any payments taken from a drawdown pension after a transfer (which was not a block transfer) before the NMPA, would be unauthorised payments and subject to the appropriate tax charge. 

Since April 2015, however, provided certain conditions are met, an individual can continue to receive drawdown payments, before the NMPA, under the receiving scheme and they will not be unauthorised payments. The conditions are:

• all of the member's pension in payment under the transferring scheme needs to be transferred to the receiving scheme (so no partial transfers)
• all of the funds transferred need to have been covered by the protected pension age under the transferring scheme

It should be noted that only the transferred funds can be taken before NMPA.  Any other funds in the receiving scheme, e.g. resulting from other transfers or contributions, would be subject to the normal rules on taking benefits.

2.3 Other transfer considerations

It is possible for an individual to transfer an arrangement containing pension benefits with no protected pension age from one scheme into an existing arrangement with a protected pension age under a different scheme, without losing the protected pension age under the receiving scheme. In this situation, the transferred pension benefits would actually benefit from the existing protected pension age under the receiving scheme and pension benefits can be taken at the same time as the existing benefits with the protected pension age.

Another situation to be aware of, is the transfer of pension rights with a protected pension age into an arrangement under a scheme where monies have already been received (e.g. regular contributions, transfer monies etc.), and there is no protected pension age. In this situation, when pension benefits are taken, the protected pension age attaching to the pension rights transferred in will be lost. This is because taking all the benefits under the same scheme on the same date will not be possible. The pension rights built up under the arrangement with no protected pension age will be subject to the NMPA of 55, and it will therefore not be possible to crystallise all the pension benefits under the same scheme on the same date at an earlier age. 

If the protected pension age entitlement originally resulted from membership of an occupational pension scheme or a section 32 policy, the protected pension age will be lost if the member is employed (or re-employed) by certain employers after taking benefits. This also covers the situation where the protected pension age has been subsequently transferred as part of a block transfer to a personal pension scheme.

Losing their protected pension age means that the member’s pension benefits will be unauthorised and each pension or lump sum benefit payment taken will be taxed accordingly until they reach NMPA.

3. Employed/re-employed after taking benefits

If the protected pension age entitlement originally resulted from membership of an occupational pension scheme or a section 32 policy, the protected pension age will be lost if the member is employed (or re-employed) by certain employers after taking benefits. This also covers the situation where the protected pension age has been subsequently transferred as part of a block transfer to a personal pension scheme.

Losing their protected pension age means that the member’s pension benefits will be unauthorised and each pension or lump sum benefit payment taken will be taxed accordingly until they reach NMPA.

3.1 For a protected pension age below age 50:

A member with a protected pension age below 50 can take their benefits before reaching age 50 and stay in employment or be re-employed by their employer or another sponsoring employer in the scheme, as long as the member is not connected with their employer.

‘Connected’ is defined at: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm027000

3.2 For a protected pension age 50 to 54:

Where an individual with a protected pension age between age 50 and 55 retires and takes benefits before age 55 after 5 April 2006, they lose their protected pension age if they are subsequently re-employed by any of the following employers:

• a sponsoring employer in relation to the pension scheme at any time during the period of six months before the individual took benefits
• any person who is connected with any such employer, or
• any sponsoring employer in relation to the pension scheme and with whom the member is connected

and none of the re-employment conditions are met.

The re-employment conditions are:

• compulsory recall by the Armed Forces
• a break in employment of at least six months
• a break in employment of at least one month and scheme rules provide that benefits may be abated
• a break in employment of at least one month and the re-employment is materially different.

If the individual is not employed by any of the employers listed above the individual does not have to meet any of the four re-employment conditions.

Further information can be found in the HMRC guidance.

A member did not have to register their right to a protected pension age with HMRC. The scheme administrator should tell the member if they have a right to a protected pension age, and in-line with normal record-keeping requirements, the scheme administrator will have to keep written evidence of the individual’s entitlement to a protected pension age for at least six years after the individual has taken their pension benefits.

In certain circumstances, the scheme administrator will have to report the early payment of pension benefits to HMRC.