My Retirement Date – Preserved Members
This Factsheet discusses some of the main issues you should be aware of which can impact upon your ‘pension age’ and Normal Retirement Date.
It is written for people who are preserved members of a defined benefit scheme.
This Factsheet looks at the major issues about your pension age and Normal Retirement Date that YOU should be thinking about when it comes to retirement planning.
It is designed to help you think about various aspects of your pension age and how this could have a bearing upon your pension benefits.
Some of the points are more obvious than others, but they are all important.
So take a while to think about your pension age. Do you know what age that is? Are you sure?
If you are intending to get advice from a Financial Adviser this factsheet will highlight those issues you should expect consider (and often many more).
What is the meant by the term ‘pension age’?
From 6th April 2006 the term ‘pension age’ has been formally agreed by Her Majesty’s Revenue & Customs (HMRC) – the tax collecting part of Government.
The term ‘pension age’ refers to the age at which you can take your pension benefits. It doesn’t mean that this is the age at which you will get your benefits.
Your Scheme Rules will determine the minimum and maximum age limits from which you are allowed to draw your pension benefit.
What is the minimum pension age?
Until 5th April 2010, the current normal minimum pension age from a registered pension scheme is age 50.
On 6th April 2010, this rises to age 55 for everyone.
But remember that in terms of when you can draw your pension benefit depends upon the Rules of your pension scheme, which may set their minimum age higher than this.
There are still specific rules that apply for ill-health. Some schemes will allow a member to start taking their pension benefits early if they become incapable of work due to ill-health. The Scheme Rules will specify what circumstances this applies to.
A member of a pension scheme with a lower minimum pension age resulting from service before 6th April 2006, may be able to protect that right i.e. to continue to be able to draw benefits before age 50 (or before age 55 on or after 6th April 2010). If you have a lower minimum pension age you should contact your scheme administrators who will let you know whether your lower minimum pension age is protected.
What can I take at ‘pension age’?
Your Scheme Rules will determine what pension benefit you can take and when you can start to take it.
Pension benefit may be offered to you in a variety of forms such as a cash lump sum, a pension, or both. You may be entitled to benefits from additional voluntary contributions which you may have paid or personal pension schemes of the employer to which you have contributed as well.
From 6th April 2006, much more flexibility has been introduced into pension legislation, and you may be allowed (subject to the Scheme Rules) to take your benefits at different times.
When can I draw my pension benefits?
HMRC impose rules which registered pension schemes must conform to (most schemes are registered).
The date from which you can draw your pension benefit will depend upon the Rules of your pension scheme. If you are a member of several schemes the dates may be different.
Although the present earliest age retirement benefits can be taken is 50, for the vast majority of members in a defined benefit scheme Normal Retirement Date will fall between the ages of 60-75.
There are exceptions to this such as ill-health.
Before 6th April 2006, some specific pension schemes were permitted to have a retirement date lower than 50, reflecting the nature of their members’ occupations (such as some professional sportsmen). This needed the prior approval of the Inland Revenue’s Pension Scheme Office, who produced the Occupational Pension Scheme Practice Notes which laid down the regulations of approved occupational pension schemes. If you had this right to retire before age 50, and it was an ‘unqualified’ right – that is, it does not depend on you being able to get final approval from the Trustees of the scheme or your employer for instance – then you may be able to protect this right after 6th April 2006. If this applies to you contact the administrators of your scheme.
From 6th April 2006, much more flexibility has been introduced into pension legislation, and your Scheme Rules will determine your minimum and maximum pension age.
What is meant by the term Normal Retirement Date?
Before 6th April 2006, pension schemes will have had written within their Rules a reference to Normal Retirement Date. This is important as it is the date at which you would normally have been expected to start to draw your pension benefits without the consent of the employer or the Trustees.
Even though legislation has been introduced to simplify pensions (most of which became effective from 6th April 2006) it is likely that pension schemes will continue to use Normal Retirement Date as a key date.
The age you are at your Normal Retirement Date is commonly referred to as your Normal Retirement Age.
If you are unsure what your Normal Retirement Date is, contact your pension scheme or scheme administrators who will be able to tell you.
Be careful as other phrases are commonly used such as Scheme Retirement Age which sounds very much the same but can have different meanings for different pension schemes.
The definitions may vary slightly, or significantly, from scheme to scheme, so if you have more than one pension don’t assume the words will mean the same for each scheme.
Why is Normal Retirement Date important to me?
What your Normal Retirement Date is will depend upon the Scheme Rules in place when you became a member with preserved benefits – i.e. when you ceased to be an active member of the pension scheme.
It is usually (but not always) the earliest date at which you are entitled to draw the whole of your pension benefit without penalty.
Your Normal Retirement Date is also important as you will not usually need to obtain consent from the Trustees or from the sponsoring employer to begin drawing your pension benefit at that age.
Consent may be required if you are looking to draw your pension benefit before your Normal Retirement Date. (See our Factsheet on Early Payment).
Haven’t some schemes raised the Normal Retirement Date for their members?
There have been widely-reported cases in the media about pension schemes raising the Normal Retirement Date for their members, but generally this is in relation to future pension service for active members – those people who are continuing to build up future service within their pension scheme. Raising the Normal Retirement Date will not usually affect preserved members.
Nevertheless, from time to time, it is still sensible for you to confirm what your Normal Retirement Date is as part of your retirement planning.
Do I have to stop work at my Normal Retirement Date?
Normal Retirement Date is the date from which your preserved pension benefit starts being paid.
If you have changed employer you don’t have to cease working with your current employer to be able to begin drawing your preserved benefit (from your previous employer) at Normal Retirement Date.
You are currently aged 58 and have a preserved benefit from XYZ Pension Scheme which has a Normal Retirement Age of 60. You are now working with another employer – AB Widgets - and don’t intend to cease working until age 65.
You would normally be able to draw your pension benefit from the XYZ Pension Scheme at age 60 and continue to work for AB Widgets.
However, if you are still with the same employer and have a preserved benefit from service with that employer’s pension scheme the Scheme Rules may demand that you cease employment with the company before you can take your pension.
Until 2001 you were an active member of your employer’s defined benefit pension scheme with a Normal Retirement Date of 60 – but this was closed to all members at the end of that year. Hence your active service in the pension scheme ceased.
So whilst you remained employed with the company, you now have preserved benefits with the pension scheme. Your employer set up a new money purchase pension scheme which you joined and which has a Normal Retirement Date of 65.
You need to check whether you would be able to draw your benefits from the defined benefit scheme when you reach age 60 if you continue working with the same employer. The Scheme Rules will determine whether this is possible. The Rules might, for example, state that members must have ceased employment with the sponsoring employer before the pension benefits can be paid out.
An uncommon example maybe, but possible nevertheless.
Your pension scheme may have a provision within the Scheme Rules for ‘late retirement’ – usually associated where you elect not to draw your benefit at your Normal Retirement Date. This should be checked too if it your intention to continue working beyond your Normal Retirement Date and you do not wish to draw your pension benefits at that time.
Some of my colleagues have a different retirement age to me. Why?
Some pension schemes have more than one category of membership. Where there is more than one category, different pension ages or Normal Retirement Dates may apply.
Different categories of scheme membership could include, for example:
- Senior Executives
In some cases, employers elect to run an entirely separate pension scheme for a particular section of its workforce.
Normal Retirement Dates may also differ between scheme members because of previous takeovers of the employer and/or mergers of the employers’ pension schemes. Therefore, it is never safe to assume that your Normal Retirement Date is the same as that of your colleagues.
Are retirement ages the same for men and women?
Before 17th May 1990, most pension schemes operated different retirement ages for men and women - 65 for men and 60 for women was the most common example. A court case dealing with sex discrimination (Barber vs GRE at the European Court of Justice in 1990) made this practice illegal.
Since then, the pension age for all pension benefits (pension, cash lump sum, death benefit) has had to be ‘equalised’ for males and females. That is, retirement age must be the same for males and females, the entitlements must be the same, the formula used to calculate benefits must be the same and conditions of payment the same.
Pension benefits earned before the 17th May 1990 can remain unaffected by equalisation, so the terms applicable to those benefits may still apply.
If the membership of the scheme could only be of one gender (e.g. a scheme with only males or only females) no action was deemed necessary under ‘equalisation’.
Pension schemes that operated different retirement ages before 1990 have had to accommodate the ruling and this needs to be taken into account when assessing your benefits.
If you have accumulated pension benefits earned since 17th May 1990 it is important to establish that they have been ‘equalised’. Some pension schemes (albeit only a tiny minority) took no immediate action to equalise – instead choosing to wait until the first member reached retirement before revising their method of calculating benefits. With the passage of time most schemes should have equalised by now – but it is always wise to check.
When will I receive my pension benefit?
Your pension benefit may not be paid to you precisely on your Normal Retirement Date – it depends on the Scheme Rules and payment procedures.
Whilst payment of your pension benefit may commence in the month that you reach your pension age or Normal Retirement Date, it is possible that any lump sum benefit would be paid immediately and your pension may begin to be paid in the month following. You should consider whether this would impact on your finances.
John Smith’s Normal Retirement Date is his 65th birthday, which falls on Sunday February 2nd. The rules of his pension scheme state that pensions are paid monthly, starting in the month following his Normal Retirement Date (rather than the specific month in which he actually retires).
John’s scheme pays pensions on the 26th of each month. Therefore, if he received his last salary at the end of January (because he finished work on Friday 31st January for the sake of this example) he won’t receive any pension payment until the end of March:
Normal Retirement Date Feb 2nd
First pension payment
This shows how important it is to find out what the rules of your scheme are, and plan ahead. Any lump sum benefit might fill the gap if paid sooner.
Weekly-paid employees could be particularly vulnerable – especially where the pension benefit is payable monthly.
Will my pension benefit change once payment has commenced?
Once payment of your pension has commenced you might normally expect to receive increases either on the anniversary of your retirement or on the payment date following some fixed date (say 6th April).
Increases to your pension in payment is often called ‘escalation’.
Whether you receive any pension increases in payment will depend upon the Scheme Rules although there are some pension increases that are legally required – but these depend upon the dates when you built up your pension benefit.
However, there are other possible changes that could affect your pension and you should investigate whether any of these would apply to you.
This type of change to pension usually applies when the pension benefit starts being paid either:
- before Normal Retirement Date (as in Early Payment or payment on the grounds of ill-heath for example) or
- before State Pension Age (e.g. if your Normal Retirement Date is 60, but your State Pension Age is 65).
These changes would happen at your Normal Retirement Age or State Pension Age.
Changes to your pension could also happen for a wide variety of reasons, such as the way your pension scheme deals with:
- equalising pension benefit for males and females.
- any takeovers and mergers that have happened.
- any transferred-in pension benefit you may have made from another employer or pension arrangement.
In these situations different parts of your benefit might come into payment at different times and with different increases.
Will reaching State Pension Age affect my pension benefit?
One of the most common reasons for a change to pensions in payment occurs when a pension commences before State Pension Age.
This is because many pension schemes were designed to provide an overall level of income for the retiring member which included the expected State Pension.
If you draw your pension benefits before State Pension Age there may be amendments to the scheme pension in payment at this key age. So if you start to receive your pension before State Pension Age you should check to see whether any change will occur.
Your pension scheme should explain the reason for any change. Not all pension schemes make changes to pensions in payment but it is important to identify whether yours does, and if it does, whether it will apply to your benefits.
Unfortunately, changes to your pension in payment is an area that causes much confusion, more often than not because of the different terminology used by pension schemes which can be inconsistent between schemes, administrators and advisers.
Typical terminology for the main type of pension changes that occur to pension once in payment include temporary pension, supplementary pension, bridging pension, pension offset and pension reduction. If in doubt, ask for an explanation in writing from the administrator of how any change would impact upon your pension benefits.
Can I take benefits earlier due to ill-health?
HMRC rules allow benefits to be paid from registered pension schemes on the grounds of ill-health and serious ill-health (less than 1 year’s life expectancy). Benefits may be granted before the minimum pension age.
Whether you would be eligible for ill-health or serious ill-health benefits would depend upon the Rules of your pension scheme and the practice of the Trustees in determining who is eligible for the benefit.
What other issues should I know about pension age?
Some employers or schemes permit their members to draw their pension benefit on favourable terms before Normal Retirement Date and this can happen for a variety of reasons.
A scheme may have a Normal Retirement Age of 65 for example, but permit members to draw pension benefit at another age e.g. 60 with little or no penalty.
This could be for a variety of reasons such as having previously ‘equalised’ pension benefit for males and females as a result of European legislation. It may also happen as a result of schemes or employers having merged in the past.
There may also be contractual reasons (e.g. prior written agreement to you).
If benefits can be taken earlier on favourable terms your pension scheme may refer to that age using different terminology (e.g. Scheme Retirement Age, Normal Pension Age etc.), so be careful to distinguish between the different terms.
Consequently, it is important for you to establish whether you are permitted to draw your pension benefit earlier than the scheme’s Normal Retirement Date and if you are, at what age, and with what penalties? (See our Factsheet Early Payment).
Summary & Key Points
When making enquiries about your pension benefit it is very important that you make it clear that you are a preserved member rather than an active member or pensioner member. Active, preserved and pensioner are different classes of membership of a pension scheme and any definitions and paragraphs contained within your Scheme Rules or scheme literature relating to any benefit may differ considerably between these categories.
On average, people change jobs every 5 to 6 years. It is possible therefore, that you will have more than one pension benefit. For each pension benefit you need to consider the following items:
When reviewing your pension benefit you need to identify your ‘pension age’ or Normal Retirement Date.
- Is your Normal Retirement Date the earliest age that you may draw your pension benefit (other than on ‘ill-health’ grounds):
- without trustee consent?
- without the sponsoring employer’s consent? (where there still is one)
- wholly without reduction?
- If you have pensionable service with effect from 17th May 1990, are retirement ages equal for males and females for service from that date?
- Where you have pensionable service with effect from 17th May 1990, has your pension benefit been equalised (assuming there were both males and females in the scheme)?
- When you draw you pension benefit is there any change to your pension in payment such as:
- an additional pension (e.g. commencing at a later date)?
- a temporary pension (e.g. payable between two dates)?
- a reduction to your pension (e.g. a decrease to your pension)?
- When will your pension benefit commence? e.g.
- the month you reach your Normal Retirement Date?
- the month after your reach your Normal Retirement Date?
- some other date?
- Keep informed. Your scheme may modify benefits and Rules. Legislation may change. Your circumstances may alter.
- Rules differ from scheme to scheme and are wide and varied in content. Don’t assume that what applies to one of your pension schemes will necessarily apply to others that you may have.
- HMRC impose rules which registered pension schemes must conform to.
People seldom have identical pensions and you should avoid drawing comparisons with colleagues whose circumstances may at first appear the same but could emerge as having significant differences.
This is not an authoritative document. Seek professional advice from an appropriately experienced and qualified adviser.
My Retirement Date v1.4 Preserved
Last updated 190906