Generally, doing so put the scheme member in a better position than they would have been under the new rules.
This group of rules included Scheme Specific Protection, where an individual could take more than 25 per cent of their pension funds tax-free and/or allowed access before the normal minimum retirement age.
A recent case involving policy officers covered by FT Adviser demonstrated the importance of bearing the subtleties of these rules in mind to ensure clients do not fall foul of them.
The High Court ruled in favour of the police officers, signifying that the employer should have made them aware of the tax implications of taking up further employment within one month of their retirement.
The main considerations for retaining protected pension age are: the transfer rules, requirements at the individual’s initial Benefits Crystallisation Event (BCE) and employment. I will discuss each in turn.
Transfers
When moving funds from the scheme where the protected pension age arose to another pension, in order to retain the protection this must be completed as part of a block transfer.
As a reminder, the block transfer criteria are:
Assuming all of the above criteria are met, the protected pension age remains in place in the new scheme.
BCEs
The main consideration when it comes to taking benefits where there is a protected pension age in place, is that the scheme member must fully crystallise their pension fund.
If not, they will lose their protection.
It is also worth remembering that the client’s available lifetime allowance is reduced by 2.5 per cent for every complete year between the date benefits are taken and the normal retirement age of 55.
Employment
An important wrinkle also applies in certain cases in respect of the individual’s employment. The restrictions depend on whether the protection applies below 50 or from 50 to age 54.
A protected pension age, when protected below age 50, will be lost if a client:
Connected in this context essentially means if the person has control over the company.
For example, a footballer can take benefits at their protected age and continue to play for the club, as long as they do not own or control the club.
Where the protected pension age is between 50 and 54, the protection if lost if after taking benefits the individual is employed by:
Therefore in this instance, if the individual returns to work with the employer, their protected pension age will be lost from the date of re-employment.
As I have outlined above, many of the historic rules are now out of date and do not fit well with the current pension environment, they also serve as an obstacle to effective retirement planning.
The successive layers of legislations have added several tiers of unnecessary complexity. Simplification of these rules would appear to be the most appropriate cause of action.
Grant Blakey is a technical consultant at AJ Bell