PTM176700 - Lump sum allowance and lump sum and death benefit allowance: Protections: Individuals with enhancement factors and when a lump sum cannot be paid as an uncrystallised funds lump sum
Primary protection enhancement factor
Pre-commencement pension credit enhancement factor
Pension credit enhancement factor
Non-residence factor
Overseas transfer factor
Overview
Paragraph 4A(1) and (8) Schedule 29 Finance Act 2004
A lump sum is an uncrystallised funds pension lump sum (UFPLS) if:
- It is paid on or after 6 April 2015 in respect of a money purchase arrangement that is not a collective money purchase arrangement,
- It is paid when the member has reached the normal minimum pension age, or the ill-health condition is met,
- It is not a pension commencement lump sum,
- It is not a trivial commutation lump sum,
- Immediately before the member becomes entitled to it the sums or assets that are to be used to provide it:
- Represent the rights of the member under the scheme that are the uncrystallised rights but,
- Do not represent rights attributable to a disqualifying pension credit.
You can read more about UFPLS at PTM063300.
The guidance below goes into detail about when an individual with enhancement factors cannot have a lump sum paid as an UFPLS.
Primary protection enhancement factor
Paragraph 7(8) and (8) Schedule 26 Finance Act 2004
Where an individual has a primary protection enhancement factor the lump sum payment is not an UFPLS if immediately before the lump sum is paid the amount given by the formula:
(£1,800,000 – A) / 4
Is less than 25% of the lump sum being paid.
Where:
A – Is the previously used-amount of the individual’s lump sum and death benefit allowance if a relevant benefit crystallisation event had occurred immediately before the lump sum is paid.
The previously-used amount is the aggregate of the non-taxable amounts at each relevant benefit crystallisation event (see PTM173000).
Example
On 5 June 2030, Gerard is paid a lump sum of £50,000. Gerard has primary protection and has a previously-used amount of £30,000 prior to the payment of the lump sum.
A is therefore £30,000.
(£1,800,000 - £30,000) / 4 = £442,500
As the resulting figure isn’t below 25% of the lump sum being paid, Gerard can have this lump sum paid as an UFPLS.
Pre-commencement pension credit enhancement factor
Paragraph 18(7) and (8) Schedule 36 Finance Act 2004
Where an individual has a pre-commencement enhancement factor the lump sum payment is not an UFPLS if immediately before the lump sum is paid the amount given by the formula:
(A – B) / 4
Is less than 25% of the lump sum being paid.
Where:
A is:
- In the case where another protection applies, the individual’s protected lump sum and death benefit allowance, or
- £1,073,100 in any other case
B is the previously used-amount of the individual’s lump sum and death benefit allowance if a relevant benefit crystallisation event had occurred immediately before the lump sum is paid.
Example
On 10 July 2028, Suella receives a lump sum payment of £80,000. Prior to this payment, Suella has a previously-used amount of £50,000. She has a pre-commencement credit factor and no other protections.
A is £1,073,100 and B is £50,000.
(£1,073,100 - £50,000) / 4 = £255,775
As the resulting figure isn’t below 25% of the lump sum being paid, Suella can have this lump sum paid as an UFPLS.
Pension credit enhancement factor
Paragraph 20A(8) Schedule 36 Finance Act 2004
Where an individual has a pension credit enhancement factor the lump sum payment is not an UFPLS if immediately before the lump sum is paid the amount given by the formula:
(A – B) / 4
Is less than 25% of the lump sum being paid.
Where:
A is:
- In the case where another protection applies, the individual’s protected lump sum and death benefit allowance, or
- £1,073,100 in any other case
B is the previously used-amount of the individual’s lump sum and death benefit allowance if a relevant benefit crystallisation event had occurred immediately before the lump sum is paid.
Example
On 18 September 2029, Jeremy receives a lump sum payment of £100,000. Prior to this payment, he has a previously-used amount of £200,000. He has a pension credit factor and fixed protection 2014.
A is £1,500,000 and B is £200,000.
(£1,500,000 - £200,000) / 4 = £325,000
As the resulting figure isn’t below 25% of the lump sum being paid, Jeremy can have this lump sum paid as an UFPLS.
Non-residence factor
Paragraph 20B(8) Schedule 36 Finance Act 2004
Where an individual has a non-residence enhancement factor the lump sum payment is not an UFPLS if immediately before the lump sum is paid the amount given by the formula:
(A – B) / 4
Is less than 25% of the lump sum being paid.
Where:
A is:
- In the case where another protection applies, the individual’s protected lump sum and death benefit allowance, or
- £1,073,100 in any other case
B is the previously used-amount of the individual’s lump sum and death benefit allowance if a relevant benefit crystallisation event had occurred immediately before the lump sum is paid.
Overseas transfer factor
Paragraph 20E(9) Schedule 36 Finance Act 2004
Where an individual has a overseas transfer enhancement factor the lump sum payment is not an UFPLS if immediately before the lump sum is paid the amount given by the formula:
(A – B) / 4
Is less than 25% of the lump sum being paid.
Where:
A is:
- In the case where another protection applies, the individual’s protected lump sum and death benefit allowance, or
- £1,073,100 in any other case
B is the previously used-amount of the individual’s lump sum and death benefit allowance if a relevant benefit crystallisation event had occurred immediately before the lump sum is paid.