PTM062100 - Member benefits: pensions: pension age
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Pension rule 1
Section 165(1) – pension rule 1 Finance Act 2004
For a pension payment to a member to be an authorised payment it must satisfy the ‘pension rules’ at section 165 Finance Act 2004. Pension rule 1 provides that no pension may be paid before the member reaches normal minimum pension age unless the ill-health condition is met.
The payment conditions for many types of lump sum require the member to have reached normal minimum pension age. This requirement to be at least normal minimum pension age is included in some of the most common lump sum payments such as:
- Pension commencement lump sum,
- Uncrystallised funds pension lump sum,
- Trivial commutation lump sum.
This is why the concept of normal minimum pension age is important. Any pension payment made before the member reaches normal minimum pension age is an unauthorised payment and will be taxed accordingly (see PTM131000) unless the member is:
- retiring due to ill health, or
- using a protected pension age (see PTM062205).
Normal minimum pension age
Section 279(1) Finance Act 2004
Since 6 April 2010 the normal minimum pension age is 55. (It was 50 for the period 6 April 2006 to 5 April 2010.) 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 normal minimum pension age. The rules of a particular pension scheme may however impose a higher minimum age for payment of scheme benefits.
The tax rules do not require the member to retire before benefits can be taken. However, individual pension scheme rules may set such a restriction.
Scheme rules may provide for benefits from different sections or arrangements (or part of an arrangement) within the same scheme to be paid 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.
The normal minimum pension age applies even in the case of individuals within certain occupations who normally retire before age 55. Examples are professional sports people or individuals in hazardous occupations. However, individuals who before 6 April 2006 had the right to take their pension before normal minimum pension age may be able to take their benefits earlier than age 55 if they qualify for a protected pension age. PTM062205 provides more information about this.
Individuals who are in ill-health may take benefits before normal minimum pension age as authorised payments if certain conditions are satisfied. The next section provides more information about this.
Early payment of benefits on health grounds
Paragraph 1 Schedule 28 Finance Act 2004
Schedule 1 Interpretation Act 1978
Members may get authorised pension payments before normal minimum pension age if the ill-health condition is met. This is generally referred to as ill-health retirement. The ill-health condition is met if:
- the scheme administrator has received evidence that the member is, and will continue to be, medically incapable (either physically or mentally) of continuing their current occupation as a result of injury, sickness, disease or disability, and
- the member ceases to carry on that occupation.
The evidence must be provided by a registered medical practitioner. That is a fully registered person within the meaning of the Medical Act 1983 who holds a licence to practise under that Act. This medical evidence must be kept for at least six years following the end of the tax year on which the ill-health pension started, or the lump sum payment was made.
The ill-health condition is the minimum requirement set by the tax legislation. 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.
Pension schemes may pay varying levels of ill-health pension depending on the level of the member’s incapacity. 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.
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 do not set a maximum age by which pension benefits must be put into payment. 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.