Protected pension age

These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of current legislation, which may change.

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The normal minimum pension age allowable under a registered pension scheme is 55. Pension benefits can only be taken earlier than the normal minimum pension age where a member meets the ill-health or serious ill-health conditions or has a protected pension age.

A protected pension age was available for those members who before 6 April 2006 had a right to take their pension benefits at an earlier pension age than the current rules allow. Different rules apply depending on the type of registered pension scheme involved. If neither ill-health, serious ill-health or a protected pension age applies, each pension payment taken before age 55 will be treated as an unauthorised payment.

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 normal minimum pension age applicable on 5 April 2006 (age 50), then this right may be protected providing certain conditions are met. Their minimum pension age as at 5 April 2006 became their protected pension age, and the unauthorised payment charges won’t apply if and when they take pension benefits at, or any time after their protected pension age on or after 6 April 2006.

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 here in the HMRC guidance.

Under pre-6 April 2006 tax rules, HMRC could allow members of occupational pension schemes or a section 32 policy who were in recognised special occupations to have a normal retirement age below 50. Each such case had to be agreed with HMRC on an individual basis. Where a member had this right on 5 April 2006, and providing certain conditions are met, the right is protected. The member’s normal retirement age as at 5 April 2006 is their protected pension age, and the taking of benefits at the protected pension age or any time after that would not be treated as unauthorised.

The conditions to be met are:

  • the right to take pension benefits before the age of 50 was ‘unqualified’ – in other words no one else needed to agree to the member’s request, and
  • the right was set out in the governing documentation of the scheme or plan on 10 December 2003, and the member had the right under the scheme or contract at that date or acquired the right on joining after that date, and
  • the member takes all of their uncrystallised pension and lump sum rights under the scheme or plan at the same date.

Where a member of an occupational pension scheme or section 32 policy had a right on 5 April 2006 to take their pension benefits between ages 50 and 55 (without having a recognised special occupation), 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 between the ages of 50 and 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.

Where an individual has a protected pension age before 50 and they take the pension benefits at, or any time after, their protected pension age (other than on grounds of ill-health), their lifetime allowance is reduced by 2.5% for each complete year between taking the pension benefits and the normal minimum pension age in force at the time of taking pension benefits (currently age 55).

Normally, there will also be a corresponding decrease in the maximum tax-free cash available to the individual. This is because an individual’s tax-free cash allowance is subject to the ‘permitted maximum’ unless they have some form of tax-free cash protection, such as scheme specific tax-free cash protection.

The permitted maximum is the lower of:

  • 25% of an individual’s available standard lifetime allowance, and
  • 25% of the capital value of pension benefits coming into payment.

There are members of certain statutory pension schemes, prescribed by HMRC, with a protected pension age who are not subject to a reduction in their lifetime allowance when they take their pension benefits before the normal minimum pension age. The prescribed schemes generally apply to soldiers, firemen and policemen. A full list of these schemes can be found here in the HMRC guidance.

There will be no reduction in the lifetime allowance as a result of an individual taking pension benefits at a protected pension age between 50 and 55.

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.

  • Partial crystallisation of benefits under a scheme
  • Transfers

Both these subjects are covered in more detail below.

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 crystallise’s 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 normal minimum pension age.

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’, or
  • the transfer is protected under the special protection rules that apply on winding-up

These rules apply to all transfers, including transfers to a Qualifying Recognised Overseas Pension Scheme (QROPS) or transfers of crystallised rights such as drawdown to drawdown transfers.

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 

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 buyout. 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 an 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.

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 normal minimum pension age 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. 

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.

Pensions Technical Services