PTM062210 - Member benefits: pensions: protected pension age: occupational and public service schemes - right to take benefits before age 55
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary PTM000001
This page only applies to the 2010 protected pension age where members could take their benefits before the age of 55. A new protected pension age will be introduced from 6 April 2028 where members can take their benefits before the age of 57. For information on the 2028 protected pension age see PTM062205.
Protected pension age under an occupational or public service scheme
Eligibility requirements
What is meant by an unqualified right to take benefits
Conditions for taking benefits using a protected pension age
Losing a right to a protected pension age
Reduced lump sum allowance and lump sum and death benefit allowance if protected pension age is under 50
Reporting the benefits before normal minimum pension age to HMRC
Protected pension age under an occupational or public service scheme
Before 6 April 2006 some individuals had the right to take benefits early, before the normal minimum pension age. Individuals who were members of occupational style schemes on 5 April 2006 may have protection of a right to take benefits before normal minimum pension age if they satisfy both the:
Protection for such scheme members is provided under the terms of paragraph 22 schedule 36 Finance Act 2004.
A protected pension age applies on a scheme-by-scheme basis. That is a member may have a protected pension age under one scheme, but not under another. A member may have different protected pension ages under different pension schemes.
The member’s protected pension age under the scheme can be any age under the normal minimum pension age.
Although a member may initially qualify for a protected pension age, they may take action that will cause them to lose that protection. See Losing a right to a protected pension age below for more information.
Eligibility requirements
Paragraph 22 schedule 36 Finance Act 2004
These conditions apply to an individual who on 5 April 2006 was a member of any one of the following pension vehicles:
- approved occupational pension scheme - a retirement benefits scheme approved under Chapter 1 of Part 14 Income and Corporation Taxes Act 1988 (ICTA 1988)
- public service scheme - a relevant statutory scheme, as defined in section 611A ICTA 1988, or a scheme that on 5 April 2006 was treated as if it were such a relevant statutory scheme
- an ‘old code scheme’ – a scheme that was approved under section 208 Income and Corporation Taxes Act 1970 but has not been re-approved as a 'new code' occupational pension scheme under Chapter 1 of Part 14 ICTA 1988 - they have retained their former approved status if no contributions have been made to the scheme since 5 April 1980
- a deferred annuity contract used to secure benefits provided under one of the previous three types of pension scheme
- a Parliamentary pension scheme or fund mentioned in section 613(4)(b) to (d) of ICTA 1988.
For a member to have a protected pension age under one of the pension vehicles listed above, all the following conditions must be met:
- on 5 April 2006 the member had the right to take a pension and/or lump sum before they were 55
- that right was unqualified - see What is meant by an unqualified right to take benefits below
- on 10 December 2003 the scheme rules or deferred annuity contract terms included provision to pay benefits before age 55
- the member had either:
- an unqualified right under that scheme or contract on 10 December 2003
- acquired the right in accordance with that scheme's provisions as they were on 10 December 2003 upon joining the scheme after that date.
Where these conditions are met, the age at which the member has the right to take a pension on 5 April 2006 will become their protected pension age under the scheme.
Articles 2 to 12 The Pension Schemes (Transfers, Reorganisations and Winding Up) (Transitional Provisions) Order 2006 – SI 2006/573
Generally, for the scheme pension age to be protected the individual must have been a member of the same scheme on 10 December 2003 (or the date they joined the scheme if later) and 5 April 2006. Normally, where a member transfers in the period 10 December 2003 to 5 April 2006 they will lose their right to protected pension age. However, the member may keep their right to a protected pension age if they changed pension scheme because:
- an employer reorganises their pension schemes, or
- the transfer is between 2 occupational pension schemes as a result of one or more transfers of undertakings covered by the Transfer of Undertakings (Protection of Employment) Regulations 1981.
Guidance in relation to transfers due to pension scheme reorganisations can be found at RPSM0316110 available from the National Archives website.
Guidance in relation to transfers as a result a transfer of undertakings is at RPSM0306120 and RPSM03126130 on the National Archives website.
What is meant by an unqualified right to take benefits
To have a protected pension age the member must have had the right to take benefits before normal minimum pension age. That is not the ability to take benefits, but an unqualified right.
An individual has an unqualified right to take benefits if they do not need the consent of anybody before they can take their benefits. If the scheme documentation states that the consent of the trustees or employer is required to take benefits the member does not have an unqualified right to take benefits. (It does not matter that the trustees have always operated their discretion to allow the payment of early benefits, the right is still not an unqualified right.)
For example, on 10 December 2003 a scheme may give its members an unqualified right to take pension benefits before age 55, but only if they are active members. Deferred members may take benefits before age 55 but only with the consent of the trustees or the employer. The active members as at 5 April 2006 who were also active members on 10 December 2003 or who joined the scheme after that date therefore have a protected pension age but the deferred members do not. On or after 6 April 2006, the employer decides that it will close its defined benefits section in the scheme and instead in future will provide benefits on a defined contributions basis in a new section of the existing scheme. As a result, those members who were active members of the defined benefits section on 5 April 2006 become deferred members of that section and active members of the defined contributions section (with a reserved right, qualified or unqualified) to take benefits before age 55. However, these members still retain their protected pension age as this is unaffected by any changes in scheme rules made from 6 April 2006 onwards. So, they are still able to take their benefits before age 55 after 2010 provided that consent to taking the deferred benefits (and their defined contribution section benefits if the right to them is qualified) is given and that they become entitled to all their scheme benefits under both the defined benefits and defined contributions sections on the same date.
Similarly, on 10 December 2003 a scheme may not allow active members to take benefits early without trustee or employer consent but give deferred members an unqualified right to early payment of benefits from age 50. If an individual leaves pensionable service and becomes a deferred member in accordance with the scheme rules and exercises their right to take benefits before age 55 they will have a protected pension age. No protection will be given to those who are not deferred members, as they have not met the condition that allows them an unqualified right to take benefits.
Some rules give members an unqualified right to take benefits but only when a certain contingency occurs. It is only when the contingency occurs that the rules of the registered pension scheme give a member the unqualified right to take benefits before age 55 and that they will have a protected pension age. So, unless and until the relevant contingency actually occurs in respect of them, the members do not have a protected pension age.
For example, on 10 December 2003 a scheme may give its members an unqualified right to take pension benefits before 55, but only if they are made redundant. If any members are made redundant after 5 April 2010, are aged over 50 but under 55 and exercise their right to take pension benefits, they will have a protected pension age and will not be liable to a tax charge.
Conditions for taking benefits using a protected pension age
Paragraph 22(7) schedule 36 Finance Act 2004
Certain conditions must be met if the member wants to use their protected pension age to take benefits before they are 55. The legislation collectively refers to these conditions as the ‘retirement condition’. The retirement condition broadly reflects the conditions required for early payment of benefits under occupational style schemes before 6 April 2006.
Where the conditions are met, the protected pension age applies to all benefits the member can take under the scheme including:
- benefits to which the member does not have an unqualified right (see below)
- new benefits built up after 5 April 2006
- any benefits in respect of a transfer into the scheme.
The member must become entitled to all their benefits under the pension scheme on the same date. Any benefits that the member had already become entitled to before 6 April 2006 are disregarded for the purposes of this condition. In certain circumstances this requirement for entitlement to arise on the same date is modified to a requirement for entitlement to arise in a 6-month period. PTM062220 provides more information about this condition under the section ‘Condition for taking benefits’.
Before 6 April 2006 one of the conditions for early payment of benefits was that the member had to actually retire. After becoming entitled to benefits using a protected pension age the member will lose that protected pension age if they are employed by certain persons. If that happens all pension payments made before the member reaches normal minimum pension age will be unauthorised payments. PTM062230 gives more guidance on when a member will, or will not, lose their protected pension age due to being employed after taking benefits.
Losing a right to a protected pension age
A member may lose their protected pension age in the following circumstances.
The member transfers their pension rights to another pension scheme. Protection will be lost unless the transfer is a block transfer, or the member already has a protected pension age under the receiving scheme. PTM062240 provides more information about what happens to this protection if the member’s benefits are transferred.
The member continues in employment or becomes re-employed after taking benefits using a protected pension age. PTM062230 provides more information about this.
Reduced lump sum allowance and lump sum and death benefit allowance if protected pension age is under 50
Paragraphs 19 and 23A schedule 36 Finance Act 2004
A member with a protected pension age of less than 50 who takes a lump sum before they reach the normal minimum pension age may have their lump sum allowance and their lump sum and death benefit allowance reduced. PTM171000 and PTM172000 provide further guidance about these allowances.
Where an individual has a reduced lump sum allowance their maximum pension commencement lump sum will also be reduced. The normal maximum pension commencement lump sum is the lower of:
- the available portion of the member's lump sum allowance (see PTM063250)
- the applicable amount (see PTM063240).
Members who are not subject to a reduced lump sum allowance
Paragraph 19(3) schedule 36 Finance Act 2004
Regulation 2 and schedule 1 The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451
Benefits from certain pension schemes may be paid without the member being subject to a reduced lump sum allowance. These schemes are:
- the Armed Forces Pension Scheme
- the British Transport Police Force Superannuation Fund,
- the Firefighters’ Pension Scheme,
- the Firemen’s Pension Scheme (Northern Ireland)
- the Gurkha Pension Scheme,
- the Police Pension Scheme,
- the Police Service of Northern Ireland Pension Scheme,
- the Police Service of Northern Ireland Full Time Reserve Pension Scheme
- a scheme established solely to receive additional voluntary pension contributions from members of a scheme listed above.
Reporting the benefits before normal minimum pension age to HMRC
Scheme administrators must report payment of certain benefits before normal minimum pension age on the Event Report. PTM161300 provides guidance on when a report needs to be made and the information that must be provided.