RPSM03105635 - Technical Pages: Protecting pension rights from tax charges: Lump sums: Scheme specific protection: Partial transfer - example
Note: This example is based on events which took place before the law change as at 6 April 2012, so the rules prevailing then apply (see RPSM03105580). The approach used below does not work for calculations for dates on or after 6 April 2012. These would need adaptation for the way ALSA changes and also if a member has Fixed Protection - see the examples at RPSM03105590.
Example of how to pay a lump sum exceeding 25% where there has been a partial transfer out of benefits after 5 April 2006
On 5 April 2006 Mark is a member of a pension scheme under which he has uncrystallised pension rights worth £60,000 and uncrystallised lump sum rights worth £30,000. This lump sum right of more than 25% receives protection.
In 2008 Mark transfers £40,000 out of this scheme to another pension arrangement.
In June 2010 Mark takes benefits from his protected pension scheme. When Mark takes benefits the value of his pension rights is £300,000. The standard lifetime allowance is £1.8 million. The maximum pension commencement lump sum that Mark can receive is £83,000.
This amount consists of the revalued 5 April 2006 lump sum rights plus the amount of ALSA found using the formula in RPSM03105580 minus 25% of the £40,000 partial transfer.
The amount of the revalued 5 April 2006 lump sum rights is
£30,000 x £1.8 million/£1.5 million = £36,000
The ALSA amount is
{£300,000 - (£60,000 x £1.8 million/£1.5 million)}/4 = £57,000.
So the maximum lump sum calculation is
£36,000 + £57,000 - (£40,000/4) = £83,000.
Note: This example holds good from 6 April 2012 until such time as the standard lifetime allowance exceeds £1.8 million.
| Glossary (RPSM20000000) |
