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HMRC internal manual

Pensions Tax Manual

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Member benefits: pensions: protected pension age: right to take benefits before age 50

 

Glossary PTM000001
   

 

Retirement annuity contracts and personal pensions: members with a right to take benefits before age 50
Prescribed occupations for personal pension schemes and retirement annuity contracts
Members with protected pension ages who are not subject to a reduction in their lifetime allowance
Taking benefits

Retirement annuity contracts and personal pensions: members with a right to take benefits before age 50

Paragraph 21 and 23 Schedule 36 Finance Act 2004

Regulation 3 The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451

Some members of retirement annuity contracts or personal pension schemes can protect their right to take pension and lump sum benefits at their request before the normal minimum pension age. These are members who before 6 April 2006 were among those professional people, mainly sports persons and individuals in hazardous occupations, who had a normal retirement age below 50 approved by HMRC. For these rights to be protected from unauthorised payment tax charges, allowing the individual to continue to take a pension and/or lump sum from an age less than 55, the individual must on 5 April 2006:

  • be or have been in a prescribed occupation (one prescribed by Regulation 3 of The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451 - see heading below for more information),
  • the member must have had the right on 5 April 2006 to take a pension and/or lump sum before the age of 50, and
  • the right must be 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).

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.

A member with a protected pension age of less than 50 who takes a pension before they reach the normal minimum pension age (55) may have their lifetime allowance reduced (see PTM082000).

See PTM062230 and PTM062240 for other conditions that apply to taking benefits before normal minimum pension age.

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Prescribed occupations for personal pension schemes and retirement annuity contracts

Regulation 3 The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451

The prescribed occupations for the purposes of protecting the rights to take benefits before age 50 under a personal pension scheme or retirement annuity contract 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

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Members with protected pension ages who are not subject to a reduction in their lifetime allowance

Paragraph 19(3)(c) Schedule 36 Finance Act 2004

Regulation 2 The Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 - SI 2005/3451

Certain schemes listed in the Registered Pension Schemes (Prescribed Schemes and Occupations) Regulations 2005 give their members a right to take pension and lump sum benefits below the normal minimum pension age. These schemes are:

  • The Armed Forces Pension Scheme
  • The British Transport Police Force Superannuation Fund,
  • The Firefighters’ Pension Scheme,
  • The Firemen’s Pension Scheme (Northern Ireland)
  • The Gurkha Pension Scheme,
  • The Police Pension Scheme,
  • The Police Service of Northern Ireland Pension Scheme, and
  • The Police Service of Northern Ireland Full Time Reserve Pension Scheme.

Where a member of such a scheme takes a pension or lump sum benefits before the normal minimum pension age, the individual’s lifetime allowance is not reduced (see PTM082000).

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Taking benefits

Paragraph 22(7)(a) and 23(7) Schedule 36 Finance Act 2004

When a member with a protected pension age takes their pension and / or lump sum benefits before normal minimum pension age, they must become entitled to all of their pension and lump sum rights that were not in payment on 5 April 2006 under the registered pension scheme on the same day.

This condition also applies where there has been a block transfer of rights. The scheme that receives the block transfer must crystallise all the uncrystallised pension and lump sum rights for the individual on the same day.

This condition (taking all benefits on the same day) 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.

Articles 42 & 43 The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

The condition will also be met if:

  • the member has at least two of the following types of pension under the same pension scheme:

    • a scheme pension under a defined benefits arrangement
    • a scheme pension under a money purchase arrangement
    • a lifetime annuity,

and either:

  • the member becomes entitled to all their benefits under the scheme within a six month period beginning with entitlement to the first of any type of pension under the scheme, or
  • the member becomes entitled to at least one of their pensions and dies within six months of the first pension entitlement date without becoming entitled to all their pensions under the scheme, and 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.

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.

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.

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.

If the individual was to crystallise only those benefits benefiting from a protected pension age and left other uncrystallised benefits in the scheme (whether or not they are held in a different arrangement) those benefits would be unauthorised. Every payment made until the member reached normal minimum pension age would be an unauthorised member payment 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.