Increase in normal minimum pension age

On 6 April 2010, the earliest age at which a member of a UK registered pension scheme can ordinarily draw his or her pension increased from 50 to 55. This age is known as normal minimum pension age (NMPA). Subject to two exceptions, a pension scheme that pays a pension before NMPA on or after 6 April 2010 will make an unauthorised payment, meaning that the member will become liable for an unauthorised payments charge.
 In addition, repeated unauthorised payments may open a scheme to a potential scheme sanction charge.

The two exceptions are:

1. 
   
   Ill health pensions - Members who meet the ill-health condition can continue to receive early payment of their pensions after 6 April 2010, whether or not they have reached NMPA. 
2. 
   
   Protected pension ages - Members who had a right (including a prospective right) on 5 April 2006 to take their pensions between the ages of 50 and 55 are entitled to exercise that right after the change to NMPA comes into effect. The right must: 

• 
  
  be unqualified, for example, it cannot depend on a sponsoring employer giving consent; and
• 
  
  have been contained in the scheme's governing documents on 10 December 2003, the date when the government announced its plans to change NMPA.  

Unauthorised payments charge - An unauthorised payments charge is a charge to income tax made on an unauthorised payment. The charge is made at a rate of 40% of the unauthorised payment. An additional surcharge of 15% is levied if the unauthorised payment exceeds specific limits.

Scheme sanction charge - A scheme sanction charge is a tax charge on registered pension schemes that make unauthorised payments. A scheme sanction charge is payable at the rate of 40% of the unauthorised payment. The scheme administrator is liable to pay the charge.

What steps should businesses take in relation to the changes? 

• 
  
  Find out whether your pension scheme rules provide protected pension ages for certain members. 
• Take legal advice on whether your pension scheme rules need to be amended. 
• Prepare announcements for any affected members of your pension scheme. 
• Put in place administration systems to deal with any complex or transitional cases.

If you would like to discuss any of the issues raised in this e-mail please contact me at martinh@cleggssolicitors.com