PTM062220 - Member benefits: pensions: protected pension age: personal pensions and RACs - right to take benefits before age 50
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 |
Protected pension age under a personal pension scheme or retirement annuity contract
Eligibility requirements
Prescribed occupations for personal pension schemes and retirement annuity contracts
Condition for taking benefits
Reduced lump sum allowance and lump sum and death benefit allowance
Protected pension age under a personal pension scheme or retirement annuity contract
Before 6 April 2006 some individuals had the right to take benefits early, before the normal minimum pension age. Individuals who were members of a personal pension scheme or retirement annuity contract (RAC) 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 23 Schedule 36 Finance Act 2004. Under this provision, protection is given only to those who on 5 April 2006 had the right to take benefits before age 50.
Protected individuals who take benefits before normal minimum pension age may have a reduced lump sum allowance and a reduced lump sum and death benefit allowance. See Reduced lump sum allowance and lump sum and death benefit allowance below for more information.
A member may lose their protected pension age if they transfer to another pension scheme. PTM062240 provides more information about the effect of making a transfer on an individual’s protected pension age.
Eligibility requirements
Paragraph 23 Schedule 36 Finance Act 2004
Before 6 April 2006 some members of personal pension schemes or RACs had the right to take benefits before age 50. These were mainly sports persons and individuals in hazardous occupations, who had a normal retirement age below 50 approved by HMRC. For these members to protect their right to an early pension age, 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 the age of 50,
- The right was unqualified in that no other party need consent to the individual’s request before it becomes binding upon the scheme or contract holder (see PTM062210), and
- The member’s occupation on 5 April 2006 was, or had been, an occupation prescribed under the Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 – see the next section for more information.
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.
If a member transfers their rights under a scheme with a protected pension age to another pension scheme, they may lose their protection. PTM062240 provides more information about what happens to this protection if the member’s benefits are transferred.
Prescribed occupations for personal pension schemes and retirement annuity contracts
Regulation 3 and Schedule 2 The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451
To be eligible for a protected pension age under a personal pension scheme (PP) or retirement annuity contract (RAC), the member must have been carrying out a prescribed occupation. The prescribed occupations for the purposes of protecting the rights to take benefits before age 50 under a PP or RAC are:
- Athletes,
- Badminton players,
- Boxers,
- Cricketers,
- Cyclists,
- Dancers,
- Divers (saturation, deep sea and free swimming)
- Footballers,
- Golfers,
- Ice hockey players,
- Jockeys - flat racing,
- Jockeys - national hunt,
- Members of the Reserve Forces,
- Models,
- Motor cycle riders (motocross or road racing),
- Motor racing drivers,
- Rugby League players,
- Rugby Union players,
- Skiers (downhill),
- Snooker or billiards players,
- Speedway riders,
- Squash players,
- Table tennis players,
- Tennis players (including real tennis)
- Trapeze artists, and
- Wrestlers
Condition for taking benefits
Paragraphs 22(7)(a) and 23(7) Schedule 36 Finance Act 2004
To use their protected pension age, 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.
This condition applies whether the protected pension age is under a personal pension scheme, RAC or occupational style scheme (see PTM062210).
This condition will still be met where the individual dies within six months of the payment of a pension commencement lump sum and before becoming entitled to the relevant pension.
In certain circumstances this requirement for entitlement to arise on the same date is modified to a requirement for entitlement to arise in a six month period.
Modification of the requirement to take benefits on the same day
Articles 42 & 43 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572
Where a member is entitled to more than one type of pension under the scheme the requirement for them to become entitled to all their benefit on the same day may be modified. If the member is taking at least two of the following pension types under the same scheme:
- a scheme pension under a defined benefits arrangement
- a scheme pension under a money purchase arrangement
- a lifetime annuity
the condition for taking benefits will be met if the member becomes entitled to all their scheme benefits within a six month period. This period starts when the member becomes entitled to the first of any type of pension under the scheme.
If the member having taken one type of pension, but has not yet become entitled to all their scheme benefits, dies before the end of the six month period the condition for taking benefits will also be met if the scheme administrator considers that if the member had not died they would have become entitled to all their pensions under the scheme within the six-month period.
If the scheme that has the protected pension age does not offer drawdown, but the individual wants to take their benefits as drawdown pension, the individual has two options if the payments are to be authorised for tax purposes:
- Transfer the rights into a new scheme that does provide drawdown before crystallising any benefits from the transferring scheme. The benefits can then be fully crystallised under the receiving scheme as a pension commencement lump sum and drawdown. But unless the transfer is a block transfer the right to a protected pension age will be lost.
- Stay within the protected pension scheme and use the form of pension offered by that scheme. The low pension age will remain protected but the individual will not be able to have drawdown.
Taking the lump sum benefit from the scheme and then transferring the remaining benefits to another scheme and designating them into a flexi-access drawdown fund (in the receiving scheme) would not be becoming entitled to all rights under the same scheme. In these circumstances the whole lump sum will be an unauthorised member payment.
Some schemes may be designed so that they contain some benefits payable to an individual before the normal minimum pension age (because they qualify for protection) and some benefits payable to that individual only after having reached normal minimum pension age. For the avoidance of doubt, unless the member meets the ill-health condition (see PTM062100), if the individual wishes to take any benefits before normal minimum pension age then all their benefits in the scheme must crystallise.
This means that if the individual was to crystallise only some of their scheme benefits before the normal minimum pension age, leaving some uncrystallised benefits in the scheme, then all the benefits taken at any time before normal minimum pension age would be unauthorised member payments and taxable as such (see PTM130000). In addition, when the member did reach normal minimum pension age they would not be entitled to a pension commencement lump sum in respect of the pension paid before normal minimum pension age. All of this is so, whether or not the member’s benefits relate to a single arrangement, or to a number of arrangements under the scheme.
Reduced lump sum allowance and lump sum and death benefit allowance
Paragraphs 19 and 23A Schedule 36 Finance Act 2004
A member with a protected pension age of less than 50 who takes a relevant 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), and
- the applicable amount (see PTM063240).