RPSM03105590 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Scheme specific protection: Examples of payments
How to pay protected lump sum benefits exceeding 25%: examples for money purchase arrangements
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Example 1 Benefits taken before 6 April 2012
Example 2 Benefits taken before 6 April 2012
Example 3 Benefits taken on or after 6 April 2012
Example 4 Benefits taken on or after 6 April 2012
Example 5 Benefits taken on or after 6 April 2012
Example 6 Benefits taken on or after 6 April 2012
Example 1 Benefits taken before 6 April 2012
Ruth had a protected lump sum right of £50,000 in a retirement benefit scheme on 5 April 2006. The value of her total rights under the scheme (the fund from which her benefits, including lump sum, will be provided) was £100,000 on 5 April 2006.
Ruth took her lump sum under the scheme in June 2010 when the standard lifetime allowance was £1.8 million. At this point the value of her rights under the scheme had risen to £118,000.
Ruth’s lump sum rights in June 2010 are in principle made up of two elements, the revalorised amount of the lump sum rights as at 5 April 2006 and the ALSA lump sum. In her case the value of the ALSA lump sum is zero as the 18% increase in her rights under the scheme (from £100,000 to £118,000) is less than the 20% increase in those rights that applies for the purpose of the ALSA calculation as the standard lifetime allowance in 2010 was £1.8 million - see RPSM03105580).
So Ruth could be paid a pension commencement lump sum from the scheme of £60,000, calculated as
£50,000 x (£1.8 million/£1.5 million) + £0 = £60,000.
Example 2 Benefits taken before 6 April 2012
The facts are the same as those for Example 1 Benefits taken before 6 April 2012 above except that the value of Ruth’s rights under the scheme in April 2010 is £160,000.
Now the ALSA lump sum has an actual value as scheme rights have increased by 60% compared to the 20% increase in the standard lifetime allowance. The amount of the ALSA lump sum will be £10,000 calculated as
£160,000 - (£100,000 x £1.8 million/£1.5 million)/4
using the ALSA formula in RPSM03105580.
So, Ruth can be paid a pension commencement lump sum from the scheme of £70,000, being £60,000 (the revalorised 5 April 2006 lump sum rights) plus £10,000 (the ALSA lump sum).
Example 3 Benefits taken on or after 6 April 2012
Ruth had a protected lump sum right of £50,000 in a retirement benefit scheme on 5 April 2006. The value of her total rights under the scheme (the fund from which her benefits, including lump sum, will be provided) was £100,000 on 5 April 2006.
Ruth took her lump sum under the scheme in April 2016 when the standard lifetime allowance was £1.5 million and she did not have fixed protection at that time. At this point the value of her rights under the scheme had fallen to £90,000.
Ruth’s lump sum rights in April 2016 are in principle made up of two elements, the revalorised amount of the lump sum rights as at 5 April 2006 and the ALSA lump sum. In Ruth’s case the revalorised lump sum is:
£50,000 x (£1.8 million/£1.5 million) = £60,000
The amount of the ALSA is the minimum zero, calculated as
(£90,000 - £100,000 x £1.5 million/£1.5 million)/4
using the ALSA formula in RPSM03105580.
So Ruth could be paid a pension commencement lump sum from the scheme of £60,000.
Example 4 Benefits taken on or after 6 April 2012
The facts are the same as those for Example 3 Benefits taken on or after 6 April 2012 above except that the value of Ruth’s rights under the scheme in April 2016 is £160,000.
The value of the revalorised amount of the lump sum rights as at 5 April 2006 is unchanged from Example 3 so the revalorised lump sum is £60,000.
However, the ALSA lump sum now has an actual value as Ruth’s scheme rights have increased by more 60% whilst there is no increase in her standard lifetime allowance between 6 April 2006 and June 2016. The amount of the ALSA lump sum will be £15,000 calculated, using the ALSA formula in RPSM03105580, as
£160,000 - (£100,000 x £1.5 million/£1.5 million)/4
using the ALSA formula in RPSM03105580.
So Ruth can be paid a pension commencement lump sum from the scheme of £75,000, being £60,000 (the revalorised 5 April 2006 lump sum rights) plus £15,000 (the ALSA lump sum).
Example 5 Benefits taken on or after 6 April 2012
The facts are the same as those for Example 1 Benefits taken before 6 April 2012 above except that Ruth applied for Fixed Protection by 5 April 2012 and this is still valid. For more detail about fixed protection - see RPSM11101500.
The value of the revalorised lump sum rights as at 5 April 2006 is unchanged from Example 1 and is £60,000.
Since Ruth has fixed protection, CSLA is replaced in the ALSA formula by her underpinned lifetime allowance of £1.8 million since this is greater than the standard lifetime allowance of £1.5million for April 2016. The amount of the ALSA lump sum will be the minimum zero calculated as
£118,000 - (£100,000 x £1.8 million/£1.5 million)/4
using the ALSA formula in RPSM03105580.
So Ruth can be paid a pension commencement lump sum from the scheme of £60,000 (the revalorised 5 April 2006 lump sum rights).
Example 6 Benefits taken on or after 6 April 2012
The facts are the same as those for Example 5 Benefits taken on or after 6 April 2012 above except that the value of Ruth’s rights under the scheme in April 2016 is £160,000.
The value of the revalorised amount of the lump sum rights as at 5 April 2006 is unchanged from Example 5 so the revalorised lump sum is £60,000.
However, the ALSA lump sum now has an actual value as Ruth’s scheme rights have increased by more 60% which exceeds the increase in her standard lifetime allowance between 6 April 2006 and June 2016. The amount of the ALSA lump sum will be £10,000 calculated, using the ALSA formula in RPSM03105580, as
£160,000 - (£100,000 x £1.8 million/£1.5 million)/4
using the ALSA formula in RPSM03105580.
So Ruth can be paid a pension commencement lump sum from the scheme of £70,000, being £60,000 (the revalorised 5 April 2006 lump sum rights) plus £10,000 (the ALSA lump sum). This compares to £75,000 if all the circumstances were the same but she had not taken fixed protection (see Example 4 Benefits taken on or after 6 April 2012).
| Glossary (RPSM20000000) |
