Member benefits: pensions: pension age
Normal minimum pension age
Sections 165(1) and 279(1) Finance Act 2004
Generally, a registered pension scheme‘s rules must not allow any member - including a pension credit member - to be paid pension or lump sum benefits before they reach the normal minimum pension age set out in the pensions tax legislation. The normal minimum pension age under these tax rules is 55. The rules of a particular registered pension scheme may however impose a higher minimum age for payment of scheme benefits (see PTM028000).
The tax rules do not require that the member must retire before benefits can be taken, although the rules of a particular registered pension scheme may impose such a restriction.
Scheme rules may provide for members to be paid benefits from different schemes or arrangements (or part of an arrangement) within the same scheme at different times. For example, a member may be paid their additional voluntary contributions (AVC) benefits at age 55 whilst continuing in employment and then be paid their main scheme benefits at age 60.
Subject to the paragraphs immediately below, any benefits paid to a member before they reach normal minimum pension age are unauthorised member payments and taxed accordingly (see PTM132000).
The normal minimum pension age applies even in the case of individuals within certain occupations who customarily retire before age 55 (for example, professional sports people or individuals in hazardous occupations). However, individuals whose pension age prior to 6 April 2006 was below normal minimum pension age may be able to take their benefits earlier than age 55 if they qualify for a protected pension age (see PTM062200).
Individuals who are in ill-health or serious ill-health may take benefits before normal minimum pension age as authorised payments if certain conditions are satisfied (see below).
Early payment of benefits on health grounds
Paragraph 1 Schedule 28 Finance Act 2004
A member may take benefits at any age where:
- the scheme administrator accepts qualified medical advice that the member satisfies the ill-health condition and so is, and will continue to be, medically incapable (either physically or mentally) of continuing his or her current occupation as a result of injury, sickness, disease or disability, and
- as a result of the ill-health the member ceases to carry on that occupation.
In practice, scheme rules may have stricter ill-health criteria. For example, they may state that the member must be incapable of carrying out any occupation, rather than the current occupation that they are in.
A scheme pension paid on ill-health grounds may be reduced or stopped at any time without incurring unauthorised payment charges. This allows for scheme rules to provide for a level of pension appropriate to the member’s capacity to carry out their occupation where for example the member subsequently recovers or partially recovers from ill-health. For further information see PTM062340.
Where a stopped pension later recommences or is reduced but then increases back to the earlier rate or to some intermediate amount, the new or increased pension is treated as a BCE 2 only to the extent of any further benefit accrual in respect of the period of re-employment. See PTM088620.
When the scheme administrator obtains medical evidence in order to pay a pension early on ill-health grounds, the evidence must be retained for a period of 6 years following the end of the tax year in which the payments commenced.
Serious ill-health lump sum
Paragraph 4 Schedule 29 Finance Act 2004
A member’s uncrystallised rights may be paid to that member as a lump sum on the grounds of serious ill-health at any age, providing that certain conditions are met and that at the time the benefits are taken the scheme administrator has received evidence from a registered medical practitioner that the life expectancy of the member is less than a year.
When the scheme administrator obtains medical evidence in order to pay a lump sum early on serious ill-health grounds, the evidence must be retained for a period of 6 years following the end of the tax year in which the payments commenced.
For further details including the tax treatment applicable to these lump sum payments see PTM063400.
Maximum pension age
Pension benefits paid after the normal minimum pension age may be paid as a secured pension - that is, a lifetime annuity or a scheme pension - or (if a money purchase arrangement) as a drawdown pension, or as an uncrystallised funds pension lump sum. The tax rules permit benefits to commence after age 75, including as a pension commencement lump sum, see PTM063220. However, all accrued funds or rights not crystallised by a member’s 75th birthday are deemed to crystallise for lifetime allowance purposes at that time - see PTM088650.