Pensions, retirement and tax planning for advisers

Hello,

In this video I will look at the Normal Minimum Pension Age and the various forms of protected retirement age that clients may have, together with the associated conditions attached to the different protections.

So, what is the Normal Minimum Pension Age?

Well, in summary, it is the age at which a pension scheme member may take their benefits within the standard retirement framework.

If a member takes the benefits before then, these benefits are treated as an unauthorised payment, unless the member satisfies certain ill-health conditions, or they have a protected pension age.

When the Normal Minimum Pension Age was first introduced in April 2006, it was set at 50. However, some individuals already had the right to take benefits earlier than this, which I will cover later.

The minimum age was subsequently increased to the current level of 55 in 2010. Then a proposal to increase this minimum age to 57 in April 2028 was announced in 2014. After a number of consultations, this was ratified as legislation by the Finance Bill in November 2021.

I will start with those with a protected pension age of less than 55, which is known as the 2010 protected pension age.

How an individual qualifies for a 2010 protected pension age - and the conditions for using that protected pension age - depends on the type of pension scheme they were a member of on the 5th of April 2006.

It should be noted a protected pension age will be specific to an individual scheme, as opposed to all the pension saving arrangements that the individual may have. Where the conditions for using a protected pension age are met, the protected pension age applies to all benefits under that scheme. This includes new benefits built up after 5 April 2006 and any subsequent transfers to that scheme.

Essentially, there are two types of 2010 protection. One is for occupational pensions and public service schemes, and the other is for personal pensions and retirement annuity contracts.

An individual with a personal pension or retirement annuity contract will have a protected pension age if they were a member of that scheme on the 5th of April 2006 and, on that date, they had an unqualified right to take these benefits before age 50, based on pre-2006 HMRC rules for some sports and hazardous occupations.

An individual with an occupational pension scheme or public service scheme will have a protected pension age if they were a member of that scheme on 5th of April 2006 and, on that date, they had an unqualified right to take their benefits before age 55, based on the scheme's rules as at the 10th December 2003. Their protected pension age for the scheme is the age at which they had the right to take their benefits on the 5th of April 2006.

For both forms of protection, a condition when taking benefits is that the individual must crystallise all benefits in that scheme at the same time. In other words, phased or partial crystallisation is not possible if taking benefits before the Normal Minimum Pension Age.

For occupational and public service schemes, individuals can also lose their 2010 protected pension age if they take their benefits before the Normal Minimum Pension Age and remain employed, or are re-employed by an employer connected to those benefits. More details of this can be found in the Pension Tax Manual.

If a protected pension age is used to take benefits before age 50, a lifetime allowance reduction normally applies, with an exception for some uniformed service schemes. Although the lifetime allowance tax charge has now been removed, this may still affect the maximum amount of Pension Commencement Lump Sum available.

If benefits are transferred away from a scheme with a 2010 protected pension age, protection will be lost, unless either the benefits are already in payment, or the transfer is part of a block transfer exercise.

Broadly speaking, the conditions for a block transfer where a member has 2010 protected pension age, is that two or more members of the same scheme, transfer all their benefits to the same new scheme as a single transaction. A further condition is that these members had not been a member of the receiving scheme for more than 12 months. Any conditions of payment, such as employment or re-employment conditions, will be inherited by the receiving scheme.

So, now let me turn to the change in Normal Minimum Pension age on the 6th of April 2028, which increases the minimum age benefits can be accessed from 55 to 57.

The first thing to mention is that how this change will affect an individual will very much depend on when they were born.

Anyone born before the 6th of April 1971 will be unaffected by the change, as they will have reached 55 and 57 before the change comes into effect.

For those born between 6th of April 1971 and 5th of April 1973, they will be able to access their pension benefits at their 55th birthday as this will be before the change is made. However, as they will reach 57 after the change, they may have to wait to between 6 April 2028 and their 57th birthday, if they have not accessed benefits before, unless they have a protected retirement age.

Finally, anyone born on or after the 6th April 1973 will not be able to access benefits before 57, unless they have a protected retirement age. 

Like the 2010 protected pension age regime, 2028 protected pension ages will be specific to membership of individual schemes, as opposed to all the pension schemes an individual may have. Protection could apply to any scheme, whether it is an occupational or personal arrangement.

To determine whether an individual has a 2028 protected retirement age, there are eligibility requirements that need to be met.

The first requirement is that before 4 November 2021, the member had the right to take a pension, a lump sum, or both before they reached age 57. This would be the case if they were a member of a scheme, or had made a substantive request to transfer to a scheme, that gave them this right.

The next requirement is that the right to take benefits was unqualified. In simple terms, this means they did not need anyone’s consent to take the benefits.

The final condition is that on 11 February 2021 the scheme rules included provision to pay benefits before age 57.

To give an example, the Fidelity Adviser Solutions pension did have provision for benefits to be paid unconditionally from age 55 written into the scheme rules on 11 February 2021. So, provided an individual was a member of the Fidelity Pension Scheme, or had made a substantive request to transfer to the scheme by 4 November 2021, then they will have a protected pension age of 55.

Unlike the 2010 protection regime, there is no provision in the 2028 protection requiring the individual to take all their benefits at the same time, meaning that phased retirement of benefits is possible. Furthermore, there are no employment or re-employment restrictions.

If an individual stays in their original scheme, their 2028 protected pension age applies to all their benefits in the scheme, including future contributions and benefits transferred in. If they transfer away from the original scheme, different types of ongoing age protection apply, depending on whether they make an individual or block transfer.

If the member transfers their benefits as part of a block transfer exercise, the 2028 protected pension age applies to all their benefits in the receiving scheme. This will include any existing benefits as well as future contributions and transfers.

Like the block transfer conditions for 2010 protection, the main condition is that it will be two or more members from the same scheme transferring to the same new scheme as a single transaction. However, unlike the 2010 protection conditions, there is no time limit for any existing membership of the receiving scheme.

If the member transfers benefits on an individual basis - i.e., it is not part of a block transfer – then, unlike 2010 protection, the protection will not be completely lost. However, the protected pension age will only apply to the benefits transferred and any future growth on those assets. In essence, this will mean these benefits will need to be ring-fenced from any other assets in that scheme, unless the receiving scheme also has a protected pension age.

Well, that’s it for now, but for more technical insights and information on pensions, please visit the technical matters area of our website.

Thank you for watching.

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