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An update from Simon Parsons

The Minimum Pension Age Rise - April 2010

April 2010 will bring some significant changes to many payroll teams across the county. Not only will we see the introduction of the 50% tax band for high earners and the scaled removal of tax-free pay for those earning over £100,000, but we’ll also see some important changes relating to pensions, entitlements to receipt to state pension and retirement ages.

Throughout this article, Simon Parsons discusses the forthcoming rise in the minimum pension age and female state pension age, and the implications for payroll teams across the UK.

Minimum Pension Age

From 6 April 2010, the normal pension age will rise from 50 to 55 years (This is part of the pension reforms as announced by the government in 2003) At this point an individual may start to receive their pension payments from a tax-approved occupational or personal pension scheme. However, the pension might start at an earlier age if the individual has severe health problems.

So where does that leave those who have already taken early retirement and are still under 55?

For those under 55, who have already started to receive their pension prior to 6th April 2010, this change will have no impact and their pension arrangements which will continue. This revised change only impacts individuals who would want to start early retirement on and following 6 April 2010.

So it is possible in some circumstances to continue working and be in receipt of pension.

Previously, tax rules required an employee to leave his/her employment (stop work) in order to access an employer’s occupational pension. But as part of the 2003 pension reforms, the government relaxed these rules to enable employers to offer their workers an option(s) for flexible retirement.

In the past, tax relief qualifying pension schemes had to set a minimum age at when a member could start their pension. Before the 2003 reforms, there were various minimum pension ages set depending on the type of pension scheme, and if payments were made earlier then an additional tax charge would be applied to the payments.

The 2003 pension reforms saw the introduction of a single minimum age from 6 April 2006 of 50 years that now rises to 55 years from 6 April 2010 – this applies to any scheme that qualifies for tax relief. The upper pension start age limit remains at 75 (the latest age that a pension can be delayed to commence).

Female State Pension Age

Another change impacting pensions for the 2010/2011 tax year is the phased increase of the female State Pension Age. This significance is that the phasing commences from April 2010, continues over the next 10 years and concludes in April 2020 (with the alignment of Female and Male State Pension ages at 65). Further changes will have an impact in the future, with the transition of the State Pension age for both males and females increasing to 68 during the years 2024 and 2046.

The State Pension age for women is gradually increasing for those born on or after 6 April 1950 but before 6 April 1955 - so that eventually it will be the same as men. Both men and women born on or after 1955 but before 5 April 1959 will have a state pension age of 65.

Women affected by the phasing arrangement will not reach State Pension age on their birthday but on a specified phased date in between birthdates.

Delaying the start of receipt of State Pension

Another impact of the 2005 Pension Act is the ability to delay the start of receipt of State Pension. An individual may put off claiming State Pension for as long as they want and if they put off their claim for at least 5 weeks, they receive an increased State Pension. Any extra money can be paid as a lump-sum (for those who have put off their claim for 12 months or longer); or an increase weekly amount from the point they do claim State Pension.

So if State Pension Age is not now necessarily on the birthdate, when is it? What is the impact for this coming tax year?

Women born on or before 5 April 1950 reach State Pension age on their 60th birthday. Women born on or after 6 April 1955 and before 6 April 1959 reach State Pension age on their 65th birthday. For those whose birthday falls in between 6 April 1950 and 5 April 1955, the State Pension age falls in between birthdates on the 6th of the month with the age increasing by 2 months.

The following table identifies the birthdates and associated point State Pension age is reached for the 2010/2011 tax year:

For Tax Year 2010/2011

	Date of Birth	Date State Pension age is reached
1	6 April 1950 to 5 May 1950	6 May 2010
2	6 May 1950 to 5 June 1950	6 July 2010
3	6 June 1950 to 5 July 1950	6 September 2010
4	6 July 1950 to 5 August 1950	6 November 2010
5	6 August 1950 to 5 September 1950	6 January 2011
5	6 September 1950 to 5 October 1950	6 March 2011

Read more payroll related articles by our very own resident expert – Simon Parsons.