RPSM09105180 - Technical Pages: Member benefits: Lump sums: Winding-up lump sum: Payment from an old code scheme

Payment of a winding-up lump sum in the 2006/07 tax year by a former approved superannuation fund (an old code fund)

For the 2006/07 tax year only there is transitional protection relating to the payment of a winding-up lump sum for a registered pension scheme that is an occupational pension scheme and is what the legislation calls a former approved superannuation fund.

A former approved superannuation fund is a superannuation fund which

• was approved for the purposes of section 208 of ICTA 1970, and
• did not seek approval for the purposes of Chapter 1 of Part 14 of ICTA 1988 by 5 April 1980, and
• did not receive any contributions from 6 April 1980.

These funds enjoyed certain continued tax reliefs by virtue of section 608 ICTA 1988. Such funds automatically become a registered pension scheme on 6 April 2006 (unless they opted not to before that date).

With such schemes, a winding-up lump sum may be paid in the 2006/07 tax year without reference to the trivial commutation limit of £15,000 (1% of the standard lifetime allowance for 2006/07), and so may be of any size.

The member is not required to have available lifetime allowance for the payment to be made.

So the only conditions are that

• the occupational pension scheme is being wound-up,
• the payment extinguishes the member’s entitlement to benefits under the scheme, and
• the payment is made before the member reaches age 75.

This applies only for the 2006/07 tax year.

Taxation

Such payments in 2006/07 will be taxed on the individual in the same way as other winding-up lump sum payments, but in all cases only 75% of the payment will represent taxable pension income of the individual.