normal_minimum_pension-age 2021 (79)
Roderick Ramage, solicitor, www.law-office.co.uk
published by distribution to professional contacts on 30 September 2021
This article is not advice to any
person and may not be taken as a definitive statement of the law in general or
in any particular case. The author does
not accept any responsibility for anything that any person does or does not do
as a result of reading it.
Section 279 of the FA 2004 defines “normal minimum pension age” as, before
6th April 2010, 50, and on and after that date, 55.
The Government proposes to increase the minimum pension age
to 57 from 6 April 2028, but with complex transitional provisions.
The tax reason for the minimum pension age is the general
rule is that the payment by a registered pension scheme of a pension to a
person who has not reached that age is an “unauthorised member payment” liable,
in addition to income tax, to an “unauthorised payment charge” of 40% under the
Finance Act 2004 (FA 2004), s208, and possibly an “unauthorised payments
surcharge” of 15% under s209.
The FA 2004, Part 4, provides a tax regime specific to
pension schemes as a means of preventing the abuse of the privileged
tax-sheltered status of retirement savings in schemes registered under it. Taxation
under the FA 2004, most of which came into force on 6 April 2004 (A-Day) is in
addition to other taxes, including income
and inheritance tax. and is based on the concept of authorised and
unauthorised payments made or deemed to be made by pension schemes to or for
the benefit of members or employers.
“Unauthorised” in the FA 2004 does not have the normal
dictionary meaning of the word, but that payments which is unauthorised are,
with very few exceptions, liable to additional tax, an unauthorised payment
charge and often a surcharge, while authorised payments are not liable to
additional taxes under the Act. Before
A-Day pension schemes and the wording of their trust deeds and rules had to be
approved by the Revenue, whereas it can be said now that HMRC does not care
what pension scheme documentation says or, to a large extent, what pension
schemes do, but, as the price for giving tax relief for payments into pension
schemes and investment returns in the scheme, it imposes additional taxes on
payments out of schemes, if they are not authorised payments.
The FA 2005,
s164,lists authorised member payments, which include, in sub-s (1)(a),
pensions permitted under the pension rules or the pension
death benefit rules to be paid to or in respect of a member.
contains the five pension rules, of which this is pension rule 1.
No payment of pension may
be made before the day on which the member reaches normal minimum pension age,
unless the ill-health condition was met immediately before the member became
entitled to a pension under the pension scheme.
The pension commencement
lump sum (popularly known as the 25% tax-free lump sum), must be paid within
the period beginning six months before, and ending one year after, the day
on which the member becomes entitled to his or her relevant pension.
Not all payments
made before normal minimum pension age are unauthorised
ill-health early pension
The first and main exemption to the general rule, is that
a pension may be paid to a member before his or her normal minimum age if the
ill-health condition is met. This
condition is defined in FA 2004, sch 28 para 1, which provides that it is met
scheme administrator has received evidence from a registered medical
practitioner that the member is (and will continue to be) incapable of carrying
on the member's occupation because of physical or mental impairment, and
member has in fact ceased to carry on the member's occupation.
- has qualifying service of two years,
- is permanently
incapable of discharging efficiently the duties of the employment the member
was engaged in, and
- is not
immediately capable of undertaking any gainful employment.
maximum pension age
There is no statutory maximum pension age, but it is
common for pension schemes to impose one directly or indirectly, for example by
fixing a normal pension age and permitting members to take late retirement with
the employer’s consent. If a member has
not taken (“crystallised”) all his rights before reaching age 75, they are
treated as crystalised on reaching that age, which is benefit crystallisation
event 5 under FA 2004, s216, for the purpose of testing the member’s lifetime
allowance, which, if exceeded, will be taxed as a lifetime allowance
protected pension age
Before A-Day, in exceptional
cases, approved pension schemes were permitted to pay pensions before the
minimum pension age to employees in certain occupations. The Revenue’s former Practice Notes IR 12 (occupational
pension schemes) required the circumstances of each individual case to be
considered on its own merits, while IR 76 (personal pension schemes) published
a list of relevant occupations and permitted pension ages (eg skiers (downhill)
30, trapeze artists 40). These
exceptions were not continued by the FA 2004, but the transitional provisions
of sch 36 preserves existing rights in specified circumstances.
The minimum pension age does not apply to the various
pension and lump sum benefits, to which dependants might become entitled on the
death of a member: FA 2004, s167 (pension death benefit rules) and s168 (lump
sum death benefit rules).
pension scheme rules etc
Whether all the benefits which can be authorised member
payments are provided by any pension scheme depends in each case on the
scheme’s terms: see above.
See my mid-Summer 2020
update about age
discrimination and pensions.
state pensionable age
The processes of equalising male and female pension ages
and increasing them are too complex to be summarised in a sentence to two. See the rules in Pensions Act 1995, s126 and
sch 4. See also
copyright Roderick Ramage
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