RPSM03111010 - Technical Pages: Protecting pension rights from tax charges: Pipeline lump sum: What are they?

What are pipeline lump sums?

Any payment made from a registered pension scheme after 5 April 2006 automatically falls to be considered under Chapter 3 Part 4 FA 2004 (s160 – 185). The tax treatment of the payment will flow from whether the payment is authorised or unauthorised, and if it is authorised what type of authorised payment it is. This applies even where a payment is made in respect of benefit entitlement that arose before 6 April 2006.

It will not be practical for scheme administrators to make all payments where benefit entitlement arose before 6 April 2006 by 5 April 2006. For example a scheme may pay benefits on the last day of every month. Where benefit entitlement arises on 1 to 5 April 2006 the payment would not be made until 30 April 2006 – after 5 April in the 2006/07 tax year.

For this reason there are transitional provisions allowing certain lump sum payments made after 5 April 2006 but in respect of benefit entitlement before 6 April 2006 to be treated as authorised payments. Such payments made from schemes that are deemed to be registered pension schemes on 6 April 2006 are known as pipeline lump sum payments.

Schemes that are deemed to be registered pension schemes on 6 April 2006 by virtue of paragraph 1(1) Schedule 36 are

• retirement benefits schemes,
• deferred annuity contracts (section 32 policies) used to secure benefits provided by retirement benefits schemes,
• personal pension schemes approved under chapter 4 part 14 ICTA 1988,
• a parliamentary scheme or fund mentioned in s613(4)(b) to (d) ICTA 1988,
• an annuity contract or trust scheme approved under s620 or 621 ICTA 1988 or a substituted contract within the meaning of s622(3) ICTA 1988, and
• a contract approved under s621(1)(b) ICTA 1988

RPSM03111020 to RPSM03111040 explain what payments are covered and how they should be taxed and reported to HMRC.