RPSM03106010 - Technical Pages: Protecting pension rights from tax charges: Taking benefits before normal minimum pension age: Right to take benefits early

Right to take pension and/or lump sum benefits before normal minimum pension age

  [Paras 21 - 23 Sch 36]

From 6 April 2006, individuals who take a pension and/or lump sum benefits from a registered pension scheme before the normal minimum pension age are liable to a tax charge, unless they are in ill-health. The normal minimum pension age is age 50 from 6 April 2006 until 5 April 2010, and 55 thereafter.

Some individuals had unqualified rights on 5 April 2006 to take a pension before the normal minimum pension age and, where certain conditions are met, these individuals may take benefits at an age earlier than the normal minimum pension age without incurring a tax charge. This is known as the member’s protected pension age.

Where a member has a protected pension age, the tax rules provide that the protected pension age replaces the normal prevailing pension age for all purposes of the pensions tax legislation other than the reduction in the member’s lifetime allowance that may apply where the protected pension age is less than 50 and benefits are taken before normal minimum pension age (see RPSM03106080). So, with that one exception, when taking benefits from the relevant registered pension scheme, the tax rules apply to the member on the basis of their protected pension age rather than the prevailing normal minimum pension age.

The protected pension age therefore normally applies to all benefits the member can take under the scheme including benefits to which the member does not have an unqualified right (see RPSM03106025), new benefits introduced after 5 April 2006 and any benefits in respect of a transfer into the registered pension scheme. The exception to this is where a contingency (such as redundancy) has to occur before the member has a protected pension age (see RPSM03106025).

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 only take benefits before age 55 but only with the consent of the trustees or the employer. The active members as at 5 April 2005 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.

Individuals must keep to certain conditions if they are to keep their right to a protected pension age. RPSM03106060 to RPSM03106072 give more information on these conditions.

  Glossary (RPSM20000000)