RPSM03304100 - Scheme Administrator Pages: Protecting pension rights from tax charges: Benefit payments - tax-free lump sum over 25%: Stand-alone lump sum

Payment of a stand-alone lump sum with scheme specific lump sum protection Where on 5 April 2006 all an individual’s uncrystallised rights under all retirement benefits schemes or deferred annuity contracts relating to the same employment could have been taken as a tax free lump sum it may be possible for all the member’s uncrystallised rights to be paid as a stand-alone lump sum. (RPSM03105640 gives more information.)

A stand-alone lump sum is the payment of all the member’s uncrystallised rights under the scheme as a lump sum that is a single benefit crystallisation event.

A stand-alone lump sum can be paid once the member has reached the normal minimum pension age of 55 (50 until 5 April 2010) or any earlier protected pension age under the scheme. The lump sum can also be paid earlier if the member is taking benefits due to ill health - see RPSM08300080.

A stand alone lump sum cannot be paid

• if there has been relevant benefit accrual under the scheme, or
• if the member has previously crystallised any benefits under the scheme (benefits paid before 6 April 2006 are ignored for this test).

Before 6 April 2011 a stand-alone lump sum could not be paid to someone aged 75 or over.

Transfers of benefits in respect of the member into or out of the scheme can also cause the member to lose their right to a stand-alone lump sum - see RPSM03105641.

Amount of stand-alone lump sum

Money purchase arrangements can pay a stand-alone lump sum which includes the full investment return on the value of the lump sum rights as at 5 April 2006 even though this is more than the 5 April 2006 value indexed in line with the standard lifetime allowance.

Defined benefits or cash balance arrangements can pay a stand-alone lump sum up to the amount of the appropriate limit. (RPSM03104525 explains what the appropriate limit is.)

The payment of a stand-alone lump sum is a benefit crystallisation event (BCE 6) so it is potentially liable to the lifetime allowance charge. Apart from the lifetime allowance charge it is not liable to income tax. So whilst the member has available lifetime allowance the stand-alone lump sum is tax-free.

RPSM03105642 gives an example.