RPSM03105610 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Scheme specific protection: Example payment - protected lump sum rights under more than 1 scheme

Example of how to pay protected lump sum benefits exceeding 25% where the member has protected lump sum rights under more than one scheme relating to the same employment

Fred has total pension rights on 5 April 2006 of £100,000, split equally between two schemes. Fred has total lump sum rights of £50,000, again split equally between the two schemes.

He takes all his benefits from both schemes in 2016 when the standard lifetime allowance was £1.5 million. So the value of Fred’s pre-6 April 2006 lump sum rights is increased by 20% (see RPSM03105580). In 2016, Fred had pension rights of £80,000 in Scheme 1 and £170,000 in Scheme 2. Fred was not an active member of Scheme 1 after 5 April 2006, but continued to accrue benefits in Scheme 2. He takes drawdown pension from both schemes.

Fred can receive lump sum benefits of £92,500 made up of

The Scheme 1 lump sum benefit is made up of

• £30,000 for the pre 6 April 2006 benefits (£25,000 lump sum right at 5 April 2006 increased by 20%), plus.
• £5,000 for the increase in the value of benefits after 5 April 2006 (being 25% of the increase in the benefits value after 5 April 2006). The increase in the value of benefits after 5 April 2006 is calculated as

The Scheme 2 lump sum benefit is made up of

• £30,000 for the pre 6 April 2006 benefits (£25,000 lump sum right at 5 April 2006 increased by 20%), plus
• £27,500 for the increase in the value of benefits after 5 April 2006 (being 25% of the benefit increase after 5 April 2006) calculated as

This example is equally valid if Fred had purchased a lifetime annuity or had a scheme pension provided instead of taking drawdown pension from his money purchase arrangement.