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New Minimum Early Retirement Age of 55 instead of 50 from 6 April 2010 - Time limits for Lump Sum Payments to those approaching 50

18/12/09

From April 6, 2010, the minimum early retirement age will increase from age 50 to 55.  Guidance is expected shortly from Her Majesty’s Revenue and Customs (“HMRC”) to assist members approaching age 50 who wish to take a lump sum payment before the early retirement age changes to 55. Christine Johnston explains more.

Legislation

The HMRC Manual and The Finance Act 2004 (the “Legislation) provide that a pension scheme may pay a pension to a member when he reaches normal minimum pension age. Normal minimum pension is

  • Currently age 50 – if the employee reaches that age before 6 April 2010
  • Age 55 – if the employee reaches that age on or after 6 April 2010

The Legislation also confirms that a pension scheme may provide the member with a tax-free lump sum when he becomes “entitled” to his pension.

The member only becomes ‘entitled’ to a pension at the point when he first obtains an ‘actual right’ to receive it without having to fulfill any further conditions or take any further actions, e.g.

  • having to agree to or authorise the payment of a benefit, or
  • having to obtain an employer’s or scheme trustee/scheme administrator’s agreement or co-operation to benefit payment.

Further complications

Commentators have noted that to complicate the matter further, Easter bank holidays fall around this time with the last working day of the tax year being Thursday, April 1, 2010, followed by Good Friday and Easter Monday with April 6 falling on the Tuesday.  Therefore, anyone whose 50th birthday falls between 1 April and 6 April may have difficulties in complying with the legislation unless they act swiftly. 

HMRC guidance is expected shortly to clarity the situation for those scheme members whose 50th birthday falls into that date range or who reach age 50 in the months before 6 April 2010. HMRC may specify what conditions need to be satisfied to allow lump sums to be paid to them.  Such members should take professional advice on this urgently if they wish to take a tax free lump sum. 

Disclaimer

This update is intended to give general information about legal topics and is not intended to apply to specific circumstances. Its contents should not, therefore, be regarded as constituting legal advice and should not be relied on as such. In relation to any particular problem that you may have you are advised to seek specific legal advice.

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