The Government plans to raise the minimum pension age in line with the State Pension Age (SPA) in the future, with the increase due to come in once the SPA reaches age 67 in 2028. This will mean someone cannot take benefits from their pension until age 57.

From 2028 onwards it is planned that the minimum age will rise in line with the SPA so that it is always 10 years earlier than the SPA.

Lump Sum benefits

PCLS – the tax free lump which may be available to a member when they start to take the benefits of a scheme pension, lifetime annuity or drawdown pension. There are 5 conditions that must be satisfied for the PCLS to be paid:

1. the entitlement must be connected to an arising element of a relevant pension (ie a scheme pension, lifetime annuity or drawdown pension)
2. The member must have some LTA remaining
3. The lump sum must be paid within 6 months before or 12 after the member being entitled to the relevant pension
4. It must be paid when the member has reach normal minimum pension age
5. The lump sum is not an excluded lump sum (i.e. where a bridging pension was set up with the sole purpose of increasing the member’s PCLS).

The maximum PCLS available to the member is the lower of 25% of the capital value of the benefits coming into payment and 25% of the remaining LTA.

In some schemes it was possible to accrue a tax free lump sum greater than 25% of the value of the member’s benefits as at 5^th April 2006 and this element can be protected.

At 75 the member is tested against the LTA. But they can still take a PCLS after 75 but only if they have some LTA remaining at age 75. At this point the member can only take a maximum of 25% of the remaining LTA after 75 as a PCLS.

UFPLS – This is where a uncrystalised lump is taken from a money purchase pension, without designating the funds to a drawdown plan.

This will trigger the MPAA rules and is tested under BCE 6 for the LTA.

If the UFPLS exceeds the LTA:

• then the member can reduce the UFPLS to it is within the LTA,
• take the UFPLS but pay a 55% tax charge, or
• take the UFPLS to the amount allowed by the LTA and designate the rest to a drawdown plan and pay 25% tax charge

An UFPLS can be taken after 75 but only where the member has that weren’t crystalised before age 75 (known as unused funds)

The member doesn’t receive a PCLS with an UFPLS, however 25% of the payment is tax free with the remaining 75% taxed at the member’s marginal rate of income tax via PAYE. The only time when the tax free part is less than 25% is when the member is over 75 as they don’t have the LTA to do so.