Introduction

Protected tax free cash above 25% is a valuable benefit, so it’s important that advisers are aware of how the entitlement is calculated when taking benefits, the situations in which it could be lost and also the restrictions in flexibility that come with the protection.

This module should take around 30 minutes to complete. It includes a short self-assessment quiz to test what you’ve learned. A 30 minutes CII/PFS accredited CPD certificate can be claimed.

Outcomes

On completion of this module you should be able to:

  1. Determine if clients could be entitled to scheme specific tax free cash
  2. Explain the conditions that must be met to allow protected tax free cash to be paid, including the special rules for ‘stand-alone lump sums’
  3. Calculate current protected tax free cash entitlement, based on A-Day values
  4. Explain when protected tax free cash rights can be retained on transferring to another pension scheme
Literature

Learning material

This module looks at how scheme specific tax free cash is calculated on taking benefits and the situations in which the protection could be lost - in particular, the rules around transferring protected tax free cash rights.

Please read the learning material before attempting the self-assessment questions.

CPD minutes: 30

Technical guide – Scheme specific tax free cash protection

Question 1

Which of the following statements about scheme specific tax free cash rights are false?

  1. Available to pre A-Day members of occupational or section 226 schemes who were entitled to more than 25% tax free cash on 5 April 2006
  2. Not available to clients who had registered tax free cash under enhanced and/or primary protection
  3. Scheme specific tax free cash rights had to be registered by 5 April 2009
  4. All benefits under the scheme have to be crystallised at the same time

Question 2

At A-Day, Iain was a member of his employer’s occupational pension scheme. His fund value was £250,000 and he had a tax free cash entitlement of £120,000. When he took his benefits, his fund value had grown to £400,000. If the LTA was £1,073,100 at that point, what was the maximum amount of tax free cash that Iain could have taken?

  1. £147,410
  2. £181,500
  3. £199,287
  4. £206,739

Question 3

Which of the following would not result in the loss of stand-alone tax free cash protection?

  1. Benefits are taken in stages (phased)
  2. Contributions are made to the scheme
  3. A block transfer to a newly established scheme
  4. The member decides to take less than their 100% tax free cash entitlement.

Question 4

Which of the following would mean that scheme specific tax free cash protection is lost?

  1. A block transfer to a brand new scheme
  2. A transfer to a section 32 on scheme wind-up
  3. A partial transfer
  4. A block transfer to a scheme where the individual has been a member for several years

Check your answers

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Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.