RPSM03105620 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Scheme specific protection: How to pay 25%+ lump sum - not enough lifetime allowance

How to pay protected lump sum benefits exceeding 25%: there is not enough available lifetime allowance: example

Peter has a proposed lump sum benefit of £50,000 under a registered pension scheme.

The lump sum is calculated on the basis of Peter’s protected lump sum rights in the scheme.

Immediately before taking benefits from this scheme, his available lifetime allowance is valued at £20,000. The maximum Peter can take as a pension commencement lump sum is £50,000. If he does, £20,000 of his pension commencement lump sum is free of income tax - but £30,000 is subject to the lifetime allowance charge under section 214 Finance Act 2004.