General principles: Pension age
Meaning of “pension age”
Pension age is the age at which pension benefits can be taken from a registered pension scheme. The rules of a scheme will determine the minimum and maximum ages at which benefits can be taken from that scheme. Generally they must not allow benefits to be taken until members reach normal minimum pension age.
Normal minimum pension age
Sections 165(1) & 279(1) Finance Act 2004
Registered pension schemes must not normally pay any benefits to members until they reach normal minimum pension age. Tax legislation provides that from 6 April 2010 normal minimum pension age is age 55 (before 6 April 2010 it was age 50).
Registered schemes are also not permitted to have a normal pension age lower than age 55 and this applies equally to individuals in occupations that usually retire before 55 (for example, professional sports people or hazardous occupations).
Although the legislation provides the minimum age at which benefits can be taken, the rules of a particular scheme will state what benefits can be taken and the age at which they can be taken from. The age at which they can be taken from can be higher than normal minimum pension age.
Members may be paid benefits from different schemes or part of an arrangement within the same scheme at different times (subject to the scheme rules), and the tax legislation also does not require member’s to have retired before they can take benefits. For example, a member may be paid their additional voluntary contributions (AVC) benefits at age 55 and continue to be employed then be paid their main scheme benefits at the age of 60.
If a registered scheme does pay benefits to a member before the normal minimum pension age unauthorised payment charge liabilities (see PTM134000 for how this is calculated) may arise unless the benefits are paid
- on ill-health grounds, or
- the member had unqualified rights on 5 April 2006 to take benefits before the normal minimum pension age.
Separate rules apply for pensions paid due to ill-health and further information can be found at PTM062100.
Protected pension age
Paragraphs 21 to 23 Schedule 36 Finance Act 2004
Generally, if individuals take benefits from a registered pension scheme before age 55 they will be liable to a tax charge unless they are retiring due to ill-health.
However, some individuals had unqualified rights on 5 April 2006 to take benefits before the normal minimum pension age. By an unqualified right, we mean that right is not dependent on anything or is somehow qualified such as requiring employer or trustee consent.
Where certain conditions are met these individuals may take their benefits earlier than age 55 without a tax charge. This is known as the individual’s protected pension age.
If an individual has a protected pension age, the tax rules provide that it replaces the prevailing normal minimum pension age for all purposes of the pensions tax legislation except for the lifetime allowance reduction that may apply where the protected pension age is less than 50 and benefits are taken before normal minimum pension age (see PTM062220).
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.
See PTM062200 for further information on protected pension age.