Lump sums

- paid in connection with scheme pensions from money purchase arrangements

We have recently received representations from the pensions industry about the consequential effects on information reporting requirements from one of the measures in this year's Finance Bill. The measure in question can be found at paragraph 23 of Schedule 23 to the Bill. It is part of the measure that amends the calculation of the pension commencement lump sum where it is paid in connection with a scheme pension from a money purchase arrangement. Broadly, in these circumstances the lump sum will be calculated by reference to the amount in the individual's "pension pot" and not by reference to the 20:1 valuation factor. (For the avoidance of doubt, for the lifetime allowance test, the scheme pension from a money purchase arrangement will continue to be by reference to the 20 to 1 test).

Paragraph 23 amends the overall ceiling on an individual's total pension commencement lump sums of 25% of the standard lifetime allowance. The amendment means that where an individual has had a previous benefit crystallisation event, scheme administrators will no longer be able to rely on the percentage of standard lifetime allowance that individual has used up in order to calculate the permitted maximum lump sum.

In practice very few individuals are likely to be affected by paragraph 23, because it will concern only those who:

• have had a previous benefit crystallisation event, and,
• who are in receipt of a scheme pension from a money purchase arrangement, and,
• who will be capped by the overall ceiling of 25% standard lifetime allowance.

We intend to make a change to the provision of information regulations (SI2006/567) to require those few individuals likely to be affected to identify themselves to Scheme Administrators before they take benefits, and to provide sufficient information to enable the Scheme Administrator to calculate the permitted maximum correctly.

In an arm's length situation we will be content for Scheme Administrators to rely on receiving this information report in order to fulfil their compliance obligations, so they will not need to ask every scheme member for extra information to check whether the member is affected by paragraph 23 before paying benefits. In the event of an individual failing to provide an information report, and an unauthorised payment being made, the Scheme Administrator would have good grounds to apply for a discharge of liability from the scheme sanction charge (S268 FA 2004).

We hope to publish draft amendments to the Provision of Information regulations shortly.