RPSM03201060 - Member Pages: Protecting pension rights from tax charges: Types of protection available: Lump sums of more than 25% fund

Lump sums which are more than 25% of the value of the pension and lump sum benefit coming into payment

A member of an occupational pension scheme approved before 6 April 2006 may have the right under their scheme rules to a tax-free lump sum that will be in excess of 25% of the value of the pension and lump sum benefits coming into payment. Where these lump sum rights will be paid on or after 6 April 2006 transitional protection will be available.

If you have the right to such a tax free lump sum, these rights will be protected from the tax charge subject to the agreement of the scheme administrator. You cannot register for this protection.

This form of lump sum protection does not apply if you have total lump sum rights of more than £375,000 and you have either primary or enhanced protection. Alternative forms of protection will apply – see RPSM03201040.

RPSM03201061 explains what the maximum lump sum is under this form of lump sum protection.

Is there anything else I should know about lump sums over 25% of the fund?

• Protection is scheme specific, in other words, the transitional protection applies to lump sum rights held in a particular occupational pension scheme.
• As this transitional protection for the lump sum rights is scheme specific it may be lost if funds are transferred to another scheme, unless your rights are transferred as part of a block transfer. RPSM03106070 explains exactly what a block transfer is. However broadly a block transfer must involve at least 2 scheme members transferring out of the same scheme at the same time. The transfer must be made to the same pension scheme at the same time and neither individual can have been a member of the scheme receiving the transfer for more than 12 months before the transfer.
• You must take all your benefits held under the scheme at the same time (except for benefits that were already in payment before 6 April 2006). You will lose this form of lump sum protection if you don’t take all your benefits held under the pension scheme at the same time.
• If on 5 April 2006 you had the right to take all your benefits under a scheme as a tax- free lump sum you may, provided certain conditions are met, continue to have this right. RPSM03105640 to RPSM03105642 set out when all your uncrystallised rights under a scheme may be taken as a lump sum.
• This form of protection does not apply to lump sum rights held on 5 April 2006 under a personal pension scheme (including stakeholder pension schemes and SIPPs) or a retirement annuity contract.