The maximum pension commencement lump sum (tax-free cash) since A-Day is 25% of the value of benefits. At A-Day this equated to a maximum pension commencement lump sum (PCLS) of 25% x £1.5m = £375,000. It then reduced to a minimum of £250,000 (25% of £1m) in 2016/17, before increasing again to £2678,275 by 2023/24. Since 6 April 2024, PCLS payments have been subject to the lump sum allowance.
There were, however, some circumstances in which a lump sum could be protected as more than 25% of the pension value.
Primary protection example
Dennis had a registered PCLS of £500,000 under primary protection. He decided to crystallise his benefits in 2023/24 when the LTA was £1,073,100. The maximum PCLS Dennis could take was £600,000, i.e. £500,000 x (£1.8m/£1.5m). Even though the LTA had reduced to £1,073,100, the £1.8m underpinned LTA is still used in this calculation.
Wh...
Shortened demo course. See details at foot of page.
...transfer; or
There was a transfer to an individual pension contract (e.g. a Section 32 buyout contract) or assignment of a member's policy on the wind-up of the scheme
Whilst the lifetime allowance has been abolished, scheme specific tax-free cash entitlements also continue to be of relevance for the purposes of the lump sum allowance.
Some pre A-Day members of occupational pension schemes were entitled to a PCLS equal to their fund value. The whole of their fund can now be taken as a lump sum provided they have had no relevant benefit accrual (see section on enhanced protection) and they didn't have lump sum protection with enhanced or primary protection. The lump sum must be taken in a single transaction.
Which type of pre A-Day pensions could have built up a pension commencement lump sum entitlement of greater than 25% of the value of pension benefits and therefore benefit from scheme specific protection?
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