Protected pension age
Before 6 April 2006 (A-day) some individuals had a right to take their pension benefits before the normal minimum pension age if they either had a protected pension age, or they were retiring due to ill-health.
A protected pension age is lost on transfer unless it's one of the following:
- It's a block (or buddy) transfer, including a transfer on wind-up.
- It's a transfer to a scheme where the member already has a protected pension age.
Who might have a protected pension age?
- Members of an occupational pension scheme or Section 32 who, on 5 April 2006, had an ‘unqualified right’ to take their pension benefits before age 55.
- Individuals who, on 5 April 2006, were in certain jobs (usually sports people or those in dangerous occupations).
- The Government is increasing the normal minimum pension to age 57 from April 2028. Our article, Protected pension ages of 55 or 56, gives more information on this protection.
What do we mean by ‘unqualified right’?
It means that no one else needs to agree to the individual’s request to take their pension benefits such as an employer or scheme trustee. More details can be found in HMRC's Pensions Tax Manual - PTM062210.
When can the protected pension age be lost?
A protected pension age is lost if:
- The individual chooses to transfer their benefits to another pension scheme unless it’s a block (or buddy) transfer or part of a wind-up.
- The individual doesn’t become entitled to all the rights under the scheme on the same day. More information can be found in HMRC’s Pensions Tax Manual - PTM062220.
Let’s tell you more about a block (or buddy) and wind-up transfer
A block (or buddy) transfer has a number of conditions:
- More than one member of the scheme must transfer at the same time to the same scheme. A transfer to or from a Section 32 plan doesn't meet this condition as you can't have more than one member of a Section 32 plan. A group personal pension, personal pension, stakeholder pension or an occupational pension scheme under the same trust will usually meet this condition.
- 'Same time' doesn't mean funds have to transfer on the same day. As long as it’s obvious the transfers are meant to be part of the same transaction, that’s OK.
- The individual must not have been a member of the receiving scheme for longer than 12 months unless that scheme is a personal pension (including a stakeholder pension) that has only contracted out rights.
A wind-up transfer is a specific type of transfer. For a transfer to be treated as a winding-up transfer a number of conditions must apply:
- the individual has protected pension age, and
- the existing scheme must be winding up, and
- the receiving scheme must be a deferred annuity contract, usually a Section 32 plan.
If the above conditions are met, the new pension plan will keep any protected pension age.
What if an individual wants to take their pension as drawdown?
If a scheme with a protected pension age doesn’t offer drawdown, the individual has 2 choices:
- Transfer the rights to a new scheme that offers drawdown before the benefits are crystallised. The protected pension age will only be maintained if the transfer is part of a block or wind-up transfer. All of the benefits need to be crystallised at the same time.
- Stay in their current scheme to take advantage of the protected pension age. But the individual will not be able to have drawdown.
HMRC Pension Tax Manual – PTM062220 tells you more about this.
Things to bear in mind
As well as all the conditions explained above, the receiving scheme/insurer must be willing and able to accept the transfer.
An individual with a protected pension age of less than 50, taking their pension before they reach the normal minimum pension age, may have their lifetime allowance reduced. Give HMRC Pension Tax Manual – PTM082000 a read if you want to know more.
And if the individual has a reduced lifetime allowance, their maximum pension commencement lump sum will reduce to the lower of:
- the available portion of the individual's lump sum allowance (see HMRC Pension Tax Manual – PTM063250), and
- the applicable amount (see HMRC Pension Tax Manual – PTM063240)
Check out these useful links to HMRC’s tax manuals:
- HMRC Pensions Tax Manual - PTM062200 - Member benefits: pensions: protected pension age: contents
- HMRC Pension Tax Manual – PTM062220 – Member benefits: pensions: protected pension age: personal pensions and RACs – right to take benefits before age 50
- HMRC Pensions Tax Manual - PTM062205 - Member benefits: pensions: protected pension age: basic principles
- HMRC Pensions Tax Manual - PTM062240 - Member benefits: pensions: protected pension age: right to keep a protected pension age after transfers or winding-ups
- HMRC Pension Tax Manual – PTM082000 – The lifetime allowance and the lifetime allowance charge: reduced lifetime allowance
- HMRC Pension Tax Manual – PTM063250 – Member Benefits: lump sums: Pension commencement lump sum (PCLS): available portion.
- HMRC Pension Tax Manual – PTM063240 - Member Benefits: lump sums: Pension commencement lump sum (PCLS): applicable amount.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.