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 legislation at the date of publication.17 June 2021 Back to results
The normal minimum pension age (NMPA) under a registered pension scheme is currently 55. Pension benefits can only be taken earlier than the NMPA where a member meets the ill-health or serious ill-health conditions or has a protected pension age.
The UK Government is planning to change the NMPA to 57 from 6 April 2028. If that happens, this may result in new and separate protected pension age provisions being introduced aimed at those who will be affected by the increase to age 57.
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 nor a protected pension age applies, each pension payment taken before age 55 will be treated as an unauthorised payment.
Can personal pension or retirement annuity benefits be taken before age 50?(Expand content) (Minimise content) (Content loading)
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 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 in the HMRC guidance at: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062220
Can occupational pension scheme and section 32 policy benefits be taken before age 55?(Expand content) (Minimise content) (Content loading)
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.
Where an individual has a protected pension age that's lower than 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 NMPA 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 NMPA. The prescribed schemes generally apply to soldiers, firemen and policemen. A full list of these schemes can be found 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.
Can you lose the right to a protected pension age?(Expand content) (Minimise content) (Content loading)
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
- 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 bullets 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.
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.
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 What other point are there to note with transfers?)
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 What if the member is already in drawdown and then wants to 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 What other points are there to note with transfers?)
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 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’s worth noting that where a transfer took place on or after 19 March 2014 but before 6 April 2015, there were special rules which allowed the transfer of a sole member’s benefits to satisfy the condition for a block transfer as long as that member became entitled to all benefits under the registered pension scheme before 6 October 2015. See Transitional Provision section under:
What if the member is already in drawdown and then wants to transfer?(Expand content) (Minimise content) (Content loading)
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.
What other points are there to note with transfers?(Expand content) (Minimise content) (Content loading)
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.
What happens on re-employment or remaining in employment?(Expand content) (Minimise content) (Content loading)
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.
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:
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 at:
Did you have to record a protected pension age?(Expand content) (Minimise content) (Content loading)
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.
HMRC guidance covering protected pension ages can be found at:
Pensions Technical Services