Benefit payment from a
defined benefits or
cash balance arrangement may trigger relevant
benefit accrual. If an individual has not opted out of pensionable
service before 6 April 2006 and continues to accrue benefits under
the scheme after 5 April 2006 this is more likely to happen.
An individual may give their
scheme administrator details of their enhanced
protection certificate and at the time the member provides the
certificate enhanced protection is valid. However the administrator
knows that when the benefits crystallise enhanced protection will
be lost due to relevant benefit accrual. If the administrator knows
enhanced protection will be lost they should not pay out benefits
on the basis that enhanced protection applies. If the scheme
administrator pays benefits without deducting any
lifetime allowance charge due they could have no
'good faith' defence against any tax liabilities and penalties as
they knew that enhanced protection would not apply as the
crystallising benefits trigger loss of protection.
How scheme administrators deal with this issue will vary from
scheme to scheme as there is no prescribed process. However scheme
administrators should be aware that when an individual notifies
HMRC of their entitlement to both primary and enhanced protection,
because enhanced protection takes precedence over primary
protection their certificate will only show their entitlement to
enhanced protection. Individuals may have valid primary protection
but not yet have evidence of this. On the loss of enhanced
protection such an individual would revert to primary protection.
They would need to notify HMRC of this who will then issue a
revised certificate showing the appropriate primary protection
factors for that individual.
Administrators may choose to notify individuals that when
their benefits crystallise they will lose enhanced protection and
that if they have primary protection they should obtain a revised
certificate from HMRC. On receipt of details of the revised
certificate administrators will then be able to pay benefits under
the primary protection rules – see
RPSM03305000.
| Glossary ( RPSM20000000) |
