PTM062230 - Member benefits: pensions: protected pension age: loss of a protected pension age due to employment
As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives.
If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives.
Glossary PTM000001
This page only applies to the 2010 protected pension age where members could take their benefits before the age of 55. A new protected pension age will be introduced from 6 April 2028 where members can take their benefits before the age of 57. For information on the 2028 protected pension age see PTM062205.
Loss of protection due to employment after taking benefits
Protected pension age below age 50
Protected pension ages 50 to 54
Re-employment condition: recall by the armed forces
Re-employment condition: 6-month break in employment
Re-employment condition: pension abatement
Re-employment condition: materially different employment
Re-employment condition: coronavirus (Covid-19)
Loss of protection due to employment after taking benefits
Paragraph 22(7)(b) schedule 36 Finance Act 2004
Members with a pension age protected because they were a member of an occupational style scheme on 5 April 2006 (see PTM062210), will lose that protection if they are employed by certain persons after taking benefits. This condition still applies if the member’s pension rights have subsequently been transferred as part of a block transfer to a personal pension scheme.
This employment condition applies where benefits are taken after 5 April 2006. It does not apply where benefits were taken before that date.
The circumstances in which a member loses their protection depends on whether their protected pension age is:
- below 50, or
- from age 50.
Whichever age group the protected pension age falls in, protection is lost where the main purpose (or one of the main purposes) of taking benefits using a protected pension age is to avoid paying tax or national insurance contributions. A pension will be unauthorised until reaching normal minimum pension age. The normal minimum pension age will increase from age 55 to age 57 from 6 April 2028.
If the member loses their protected pension age any pension payment made before the member reaches the normal minimum pension age will be an unauthorised payment. Once the individual reaches the normal minimum pension age, the ‘employment condition’ falls away, and pension payments may be authorised. This is because pension payments will now satisfy pension rule 1 (see PTM062100) without needing to use a protected pension age.
Protected pension age below age 50
Paragraph 22(7)(b), (7A) and (7J) schedule 36 Finance Act 2004
An individual with a protected pension age of less than 50 loses that protected pension age if:
- they take their benefits, and
- they are employed by a sponsoring employer in the scheme under which the benefits are paid, and
- they are connected with that sponsoring employer.
‘Connected’ has the meaning given in section 1122 Corporation Tax Act 2010 - see PTM027000.
So, an individual becoming entitled to (taking) benefits before age 50 can stay in employment with their employer or become employed by another sponsoring employer in the scheme, as long as the member does not meet the rare circumstance of being connected with their employer.
Example 1
A footballer may take benefits at their protected pension age and continue to play for, or be employed in a non-playing capacity with, any Football League club as long as they, for example, do not own or control the club.
Example 2
Subject to the rules of the Armed Forces Pension Scheme, an individual may become entitled to benefits from that scheme and be employed in the armed forces after becoming entitled to benefits, for example, if the individual is re-called to the armed forces.
Protection is also lost where the main purpose (or one of the main purposes) of taking benefits early using a protected pension age is to avoid paying tax or National Insurance contributions. A pension will be unauthorised until reaching normal minimum pension age.
Protected pension ages 50 to 54
Paragraph 22(7)(b) and (7B) to (7K) schedule 36 Finance Act 2004
Protection is lost where the main purpose (or one of the main purposes) of taking benefits early using a protected pension age is to avoid paying tax or national insurance contributions.
Protection is lost if after taking benefits the individual is employed by one of the following employers:
- An employer who employed the individual in the 6 months before benefit entitlement arose, and who was also a sponsoring employer in the scheme under which benefit entitlement arose in that 6-month period.
- Any person connected with the employer described in the previous bullet point. Note that under this condition the person employing the individual does not need to be a sponsoring employer.
- Any sponsoring employer in the pension scheme under which benefit entitlement arose that is connected with the individual.
‘Connected’ has the meaning given in section 1122 Corporation Tax Act 2010 - see PTM027000.
For the avoidance of doubt, this requirement means that the individual must cease all employments with such employers at the time they take their benefits. If they remain in any employment with these employers, they will lose their protected pension age and their pension will be unauthorised until they reach normal minimum pension age.
If the individual later returns to employment with the employer, then their protected pension age is lost from the date they are re-employed unless they meet one of the re-employment conditions. The re-employment conditions are set out in more detail under the headings below but broadly are:
- compulsory recall by the armed forces
- a break in employment of at least 6 months
- a break in employment of at least one month and scheme rules provide that benefits may be abated
- a break in employment of at least one month and the re-employment is materially different
- re-employment to help combat coronavirus.
If the individual is not employed by any of the employers listed above the individual does not have to meet any of the re-employment conditions.
Example
Andy becomes entitled to benefits from an industry-wide pension scheme on 7 April 2010 aged 54 in respect of his employment with Employer 1 Ltd. On 8 April Andy becomes employed by ABC Ltd. As this company is not a sponsoring employer in the industry-wide scheme and is not connected to Employer 1, Andy will not lose his protected pension age.
Andy could also have gone to work for Employer 2 Ltd. Employer 2 Ltd is also a sponsoring employer in the industry-wide pension scheme. However, because Employer 2 Ltd is not connected either to Andy or Employer 1 Ltd, and did not employ Andy in the 6 months before 7 April 2010, Andy would not lose his protected pension age by becoming employed by Employer 2 Ltd.
Re-employment condition: recall by the armed forces
Paragraph 22(7B)(a), (7D) and (7I) schedule 36 Finance Act 2004
An individual will not lose their protected pension age where that individual became entitled to benefits from the Armed Forces Pension Scheme after age 49 and is later subject to a compulsory recall. A compulsory recall is defined as permanent service:
- under Part 4 or Part 5 of the Reserve Forces Act 1996
- under a recall or call-out order made under the Reserve Forces Act 1996
- having been called out or recalled under the Reserve Forces Act 1980, or
- because of any other call-out or recall obligation on an officer.
Re-employment condition: 6-month break in employment
Paragraph 22(7B)(a), (7E) and (7F)(a) Schedule 36 Finance Act 2004
If the individual is not employed after taking their benefits by any of the employers mentioned in the section Protected pension ages 50 to 54 within the 6 months after becoming entitled to benefits, they do not lose their protected pension age regardless of any subsequent employment.
Re-employment condition: pension abatement
Paragraph 22(7B)(a), (7E), (7F)(b) and (7G) schedule 36 Finance Act 2004
An individual taking benefits from a public service pension scheme who becomes employed by any of the employers mentioned in the section Protected pension ages 50 to 54 will not lose their protected pension age if:
- there is a break in employment of at least one month between the member becoming entitled to benefits and being re-employed, and
- their scheme pension is liable to be reduced by abatement. The pension does not have to actually be reduced, just liable to abatement.
For example, Judy takes benefits from public service scheme X. After 1 month, Judy returns to work for Employer X but with reduced hours. Judy’s pension and new pay level are tested by the scheme to see if her pension should be abated. Judy’s pension does not need to be reduced, but because it was tested for abatement and could have been reduced, Judy keeps her protected pension age for the benefits in payment.
Re-employment condition: materially different employment
Paragraph 22(7B)(a), (7E) (7F)(b) and (7H) schedule 36 Finance Act 2004
If after becoming entitled to benefits an individual is employed by any of the employers mentioned in the section Protected pension ages 50 to 54, they will not lose their protected pension age if:
- there is a break in employment of at least one month between the member becoming entitled to benefits and being re-employed, and
- the new employment is materially different in nature.
A simple change in hours will not be a materially different employment. To be a materially different employment the duties or the level of responsibility in the new employment must be different from those in the old employment.
This condition no longer needs to be met 6 months following the individual becoming entitled to benefits.
Re-employment condition: coronavirus (Covid-19)
Paragraph 22(7B)(a), (7E), (7F)(c) and (7K) to (7M) schedule 36 Finance Act 2004
The member will not lose their protected pension age if after taking benefits:
- they are re-employed, and that re-employment starts in the period beginning 1 March 2020 to 1 November 2020, and
- the only or main reason that the member has been employed is to help their employer respond to the public health, social, economic or other effects of coronavirus.
The period in the first bullet point may be extended to any period up to 5 April 2021 by regulations.
Under this re-employment condition:
- although there does need to be a break in employment, it does not need to be a break of at least a month, and
- the member can return to work to carry out the same duties they did before they retired.
Whether or not the re-employment is to help the employer respond to coronavirus depends on the facts and circumstances of each case. To satisfy this condition, the individual doesn’t need to be directly involved in coronavirus-related duties. For example, a nurse may not be dealing with patients suffering from coronavirus, but be re-employed to cover for other staff members:
- currently off sick with coronavirus, or
- to enable them to work with patients suffering from coronavirus.
Another example could be an individual who worked for a supermarket, returning (perhaps to drive delivery vans or as a stock picker) to help that store respond to a higher demand for home deliveries due to coronavirus.