RPSM03303050 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payments - enhanced protection: Lump sum

Lump sums

Whether or not the member's pension rights are more than the standard lifetime allowance at a particular benefit crystallisation event, before paying out any benefits you will need to obtain evidence from the member about whether or not they qualify for enhanced protection. This is because the member may have lump sum protection.

Where an individual has lump sum protection special rules on the amount of pension commencement lump sum that can be paid apply. In many cases the amount can be paid will be different from the normal pension commencement lump sum limit. So if care is not taken the scheme administrator may pay too much lump sum which would be an unauthorised member payment.

There are three ways in which an individual with enhanced protection may have lump sums paid

1. Where the individual on 5 April 2006 had total lump sum rights of more than £375,000 the individual will have protected lump sum rights. The maximum pension commencement lump sum will be expressed as a percentage of the amount of funds crystallising. ( RPSM03105185 explains in more detail how this form of lump sum protection works.) RPSM03303060 explains what evidence is needed when paying such a protected lump sum
   
   
2. Where the individual on 5 April 2006 had total lump sum rights of £375,000 or less and in a retirement benefits scheme (or deferred annuity contract) the individual had the right to a lump sum of more than 25%. The individual will have scheme specific lump sum protection. RPSM03304000 explains how such lump sums should be paid.
   
   
3. Where the individual on 5 April 2006 had total lump sum rights of £375,000 or less and in any pension scheme did not have the right to a lump sum of more than 25%. This individual has no lump sum protection. Lump sums will be paid under the normal rules – see RPSM09104100.

If an individual has lump sum rights of more than £375,000 so that they are entitled to lump sum protection under point 1 above they cannot simply choose to have the normal pension commencement lump sum rules apply. To have the normal lump sum payment rules apply the individual must give up enhanced protection.