PTM063130 - Member benefits: lump sums: protection of pre-6 April 2006 lump sum rights: scheme-specific lump sum protection - overview
Source: gov.uk (2025-08-12)


As of 6 April 2024 there is no longer lifetime allowance. If you are looking for information about protections, enhancement factors and the lifetime allowance charge please see these pages on The National Archives (https://webarchive.nationalarchives.gov.uk/ukgwa/20240305022829/https:/www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm090000). If you are looking for information about the principles of lifetime allowance and benefit crystallisation events please see these pages of The National Archives (https://webarchive.nationalarchives.gov.uk/ukgwa/20240305022836/https:/www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm080000).

Glossary PTM000001 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm000001)

What is scheme-specific lump sum protection? (#what)Conditions for scheme-specific lump sum protection (#conditions) Scheme-specific lump sum protection and the lump sum allowance and the lump sum allowance and lump sum and death benefit allowance (#LSDBA)Payment of a scheme-specific protected pension commencement lump sum with a trivial lump sum (#trivial)Payment of a scheme-specific protected pension commencement lump sum with multiple pension types (#multiple)Stand-alone lump sums (#standalone)

What is scheme-specific lump sum protection?

Paragraphs 31 to 34 schedule 36 Finance Act 2004

As explained at PTM063230 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063230) normally a pension commencement lump sum cannot be more than 25% of the value of their total rights coming into payment from the pension scheme. Before 6 April 2006 some individuals had the right to be paid a tax-free lump sum of more than 25% of their total under a pension scheme. Scheme-specific lump sum protection is the name given to the form protection that allows such individuals to be paid a pension commencement lump sum that is more than 25% of the value of their total benefits coming into payment from the registered pension scheme.

As the name suggests, this form of lump sum protection applies to a specific pension scheme. There is no need for an individual or pension scheme administrator to claim this protection from HMRC. The legislation applies the protection automatically. However, this doesn’t mean that a pension scheme has to pay the maximum allowable lump sum.

The next section Conditions for scheme-specific lump sum protection (#conditions) sets out the conditions for qualifying for, and using, scheme-specific lump sum protection. Note that it is possible for someone to lose this form of lump sum protection if a member transfers their rights to another pension scheme and the transfer is not a block transfer. See PTM063150 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063150) for issues that arise regarding this protection when a transfer is made, whether or not it is a block transfer.

What this form of lump protection does is change the amount of the maximum permitted pension commencement lump sum. In broad terms the maximum permitted pension commencement lump sum will be the value of the individual’s uncrystallised lump sum rights under the scheme on 5 April 2006, plus an additional amount which reflects any increase in the value of the individual’s rights to benefits that has occurred since 6 April 2006.

This form of lump sum protection does not change any of the other conditions for being a pension commencement lump sum (see PTM063210 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063210)). This means that the lump sum must be paid in connection with becoming entitled to a relevant pension. Because of this requirement, it is not possible to pay a 100% pension commencement lump sum.

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Conditions for scheme-specific lump sum protection

Paragraphs 31 to 33 schedule 36 Finance Act 2004

Eligibility conditions

For an individual to be eligible for scheme-specific lump sum protection the following 3 conditions must be satisfied:
- on 5 April 2006 the individual was a member of a retirement benefits scheme or deferred annuity contract as defined at paragraph 1(1)(a) to (e) of schedule 36 Finance Act 2004
- the value of their uncrystallised lump sum rights under that pension scheme on 5 April 2006 was more than 25% of the value of their total uncrystallised rights under that scheme
- the individual did not notify reliance on either enhanced or primary protection, or if they did notify reliance on enhanced or primary protection their total lump sum rights was not more than £375,000.
PTM063140 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063140) explains how to identify if an individual is eligible for scheme-specific lump sum protection.

Enhanced and/or primary protection

Different forms of lump sum protection apply to individuals with enhanced and/or primary protection if the value of their total lump sum rights on 5 April 2006 was more than £375,000. See:
- PTM176220 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm176220) for lump sum protection with primary protection
- PTM176320 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm176320) for lump sum protection with enhanced protection.
This £375,000 limit includes not only uncrystallised lump sums but also the value of lump sums deemed to have been taken with pensions put into payment before 6 April 2006.

Regulation 9 The Registered Pension Schemes (Enhanced Allowances) Regulations — SI 2006/131

An individual who:
- on 5 April 2006 had total lump sum rights over £375,000, and
- had but subsequently lost enhanced protection
may be eligible for scheme-specific lump sum protection, as long as they meet the normal conditions for this form of protection and they had not also notified reliance on primary protection.

Payment conditions

In addition to the eligibility conditions, and the normal payment rules for a pension commencement lump sum, there are 2 additional payment conditions that must be met relating to:
- which pension schemes can pay a scheme-specific protected lump sum, and
- when the member must become entitled to their pension rights under the scheme.
Which schemes can pay a scheme-specific protected lump sum

Paragraph 31(4) and (6) to (9) schedule 36 Finance Act 2004

To qualify for scheme-specific lump sum protection, the lump sum must be paid from either:
- the retirement benefits scheme or deferred annuity contract that held the pension rights on 5 April 2006 (the original scheme)
- another registered pension scheme to which the member's rights were transferred as part of a block transfer (or a series of block transfers) from the original scheme.
PTM063150 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063150) gives more information on block transfers and also explains what happens if a partial transfer is made from a protected scheme.

When the member must become entitled to their pension

Paragraph 31(3) schedule 36 Finance Act 2004

Article 23ZA The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

The individual must become entitled to all of their pension rights under the scheme (ignoring any pension that was already in payment on 5 April 2006) on the same date.

Entitlement to a pension commencement lump sum arises on the day that entitlement to the linked relevant pension arises. Where an individual dies within 6 months of the lump sum being paid but without becoming entitled to a relevant pension the ‘same day’ payment condition can still be met. The payment condition will be satisfied if the scheme administrator considers that the member would have become entitled to all their pension rights on the same date if they had not died.

Where an individual is entitled to more than one type of pension from the scheme the requirement for pension entitlement to arise on the same date is modified. The section Payment of a scheme-specific protected pension commencement lump sum with multiple pension types (#multiple) explains this payment rule in more detail.

If the member’s rights under the scheme after payment of the lump sum are not more than £10,000, instead of paying a ‘relevant pension’ those rights may be commuted and paid as a lump sum. The section Payment of a scheme-specific protected pension commencement lump sum with a trivial lump sum (#trivial) below gives details of when this may be done.

Scheme-specific lump sum protection and the lump sum allowance and lump sum and death benefit allowance

A scheme-specific lump sum is a pension commencement lump sum, and consequently a relevant benefit crystallisation event. The relevant benefit crystallisation event occurs when the member becomes entitled to the lump sum, that is, immediately before the relevant pension crystallises.

Part of the lump sum may be taxableParagraph 34A(1)(a) schedule 36 Finance Act 2004

With scheme-specific lump sum protection it is possible to pay a pension commencement lump sum of more than an individual’s available lump sum and death benefit allowance. If the value of the lump sum is greater than the amount of the individual’s available lump sum and death benefit allowance, the whole pension commencement lump sum can be paid up to the individual's lump sum and death benefit allowance. The excess is taxed at the individual's marginal rate.

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Payment of a scheme-specific protected pension commencement lump sum with a trivial lump sum

Article 23C The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

For a lump sum to be a pension commencement lump sum it must be paid in connection with becoming entitled to a relevant pension. A relevant pension is income withdrawal on designation into (flexi-access) drawdown, a lifetime annuity or scheme pension - see PTM063220 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063220). However, where the payment of a scheme-specific protected lump sum leaves a relatively small amount to provide a pension in respect of the member the lump sum may instead be paid in connection with a 'trivial lump sum' - as defined below. Note that this is a special kind of trivial lump sum and it should not be confused with the usual trivial commutation lump sum.

This provision allows the total rights under the scheme to be paid in lump sum form, albeit as distinct lump sums. The scheme-specific pension commencement lump sum is payable tax-free (up to the amount of the member’s available lifetime allowance). The whole trivial lump sum is taxable as pension income at the member’s marginal rate of tax. Payment of the trivial lump sum is not a relevant benefit crystallisation event.

What is a trivial lump sum?

Paragraph 7A schedule 29 Finance Act 2004 as inserted by article 23C The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

For a lump sum to be a trivial lump sum all the following conditions must be met:
- it is not more than £10,000 (£2,000 if paid before 27 March 2014)
- for payments made on or after 6 April 2015, the member has reached aged 55 (age 57 from 6 April 2028), an earlier protected pension age (see PTM062200 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062200)), or they meet the ill-health condition (see PTM062100 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062100)). For payments made before 6 April 2015 the member must have reached age 60
- it is paid in connection with a scheme-specific pension commencement lump sum and no later than one month after that lump sum is paid
- the member has available lump sum allowance when the lump sum is paid
- apart from any pension in payment before 6 April 2006, it extinguishes the member’s entitlement to benefit under the scheme - the reference to extinguishing the member’s entitlement to benefits means all the rights that could reasonably have been known about at the time of the payment - the lump sum will not cease to be an authorised payment purely because further entitlement is later created that could not have been known about at the time of the initial payment, for example, through a pay revision - where specifically identifiable contingent beneficiary's benefits/rights exist, these too must be commuted with the member’s benefits
- no contributions have been made to the scheme in respect of the member
- no recognised transfer has been made into or out of the scheme in respect of the member, and
- no annuity or scheme pension has been purchased by sums or assets held by the scheme for the benefit of the member.
In some cases, where the conditions above cannot be met, an individual must be paid a pension commencement lump sum that is lower than the amount of their maximum scheme-specific lump sum, because part of their rights under the scheme must be paid as a pension if the lump sum is to meet the conditions for a pension commencement lump sum.

Example

Andy has a right to a scheme-specific lump sum of £100,000. The value of his total rights under his pension scheme is £102,000. On 1 June 2025, Andy has available lump sum allowance of £101,000. Andy’s pension scheme pays the whole of his rights to him as lump sums on 1 June 2025. £100,000 is paid as a scheme-specific lump sum and as a pension commencement lump sum it is not taxable. After paying the scheme-specific lump sum, Andy still has £1,000 available lump sum allowance. The remaining £2,000 can be (and is) paid to Andy as a trivial lump sum. The whole £2,000 is taxable and PAYE is applied to this trivial lump sum.

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Payment of a scheme-specific protected pension commencement lump sum with multiple pension types

Articles 23ZB and 23ZC The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

The condition that the individual must become entitled to all their pension rights under the scheme on the same date, is modified where a single scheme-specific pension commencement lump sum is paid in connection with at least 2 following pension types from the scheme:
- a scheme pension under a defined benefits arrangement
- a scheme pension under a money purchase arrangement
- a lifetime annuity.
In such cases, the individual must become entitled to all of their pensions within 6 months of first becoming entitled to any type of pension under the pension scheme. The 18-month window for paying the pension commencement lump sum (see PTM063210 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063210)) operates by reference to the date on which the member became entitled to the last of the pensions in connection with which it is paid.

Death before becoming entitled to all the pensions

Articles 23ZB, 23ZD and 23ZE The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572

This modified payment conditions period may still be satisfied if the member dies before becoming entitled to any or all of the connected pensions. The payment condition will be satisfied if the scheme administrator thinks the member would have become entitled to all of their pensions within 6 months of:
- the earliest pension entitlement date (where the member became entitled to at least one pension type
- the earliest date on which the scheme administrator considers the member would have become entitled to any of the pensions (in a case where the member did not become entitled to any of the pensions before they died).
The 18-month window for paying the pension commencement lump sum is based on the assumption that entitlement to that lump sum arose on either:
- the latest date on which the member became entitled to a pension from the scheme (where entitlement to at least one pension arose)
- the earliest date on which the scheme administrator thinks the member would have become entitled to any of the pensions (where the member died without having become entitled to a pension).
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Stand-alone lump sums

Articles 25 to 25D The Taxation of Pension Schemes (Transitional Provisions) Order 2006 - SI 2006/572Section 637GA Income Tax (Earnings and Pensions) Act 2003

A pension commencement lump sum must be paid in connection with becoming entitled to a pension from the same scheme. For this reason, it is not possible for all of a member’s rights under the scheme to be paid as a pension commencement lump sum.

Where on 5 April 2006 an individual had the right to have all their scheme benefits paid as a tax-free lump sum, they can still get all their benefits paid as a tax-free lump sum if certain conditions are met. Where such a lump sum is paid, the lump sum is called a stand-alone lump sum.

A stand-alone lump sum can be paid from a scheme with scheme-specific protection of lump sums where:
- the member has reached the normal minimum pension age (currently age 55 but this will increase to age 57 from 6 April 2028), or any earlier protected pension age they may have under the scheme - see PTM062200 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062200), or is taking benefits earlier due to ill-health - see PTM062100 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm062100)
- the entitlement to the lump sum is a single relevant benefit crystallisation event that crystallises all of the member’s rights under the scheme that had not crystallised before 6 April 2006
- there has been no relevant benefit accrual (see PTM176330 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm176330)) for the individual under the scheme after 5 April 2006
- the member did not have lump sum rights of more than £375,000 on 5 April 2006 where either primary or enhanced protection applies when the lump sum is paid (if the individual did have lump sum rights of more than £375,000 on 5 April 2006, see the guidance at PTM063110 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063110) for the circumstances in which a stand-alone lump sum can be paid)
- on 5 April 2006, all the member’s uncrystallised rights (calculated in accordance with PTM063140 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063140)) under the scheme and any other scheme within paragraph 1(1)(a) to (e) schedule 36 relating to the same employment could have been paid out as a tax-free lump sum, and
- the total value of the member’s uncrystallised lump sum rights lump sum provided under all schemes within paragraph 1(1)(a) to (e) schedule 36 relating to the same employment (calculated as per the previous bullet point) was not more than the maximum permitted lump sum as described in PTM063140 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063140) (description for non-statutory schemes).
Payment of a stand-alone lump sum is a relevant benefit crystallisation event. This means the stand-alone lump sum is tested against the lump sum and death benefit allowance. The amount of a stand alone lump sum that can be paid tax free is the lesser of the value that could have been paid on 5 April 2023 or the lump sum death and benefit allowance.

Transfers

Transfers into or out of a registered pension scheme under which the member has the right to a stand-alone lump sum may cause the member to lose their right to a stand-alone lump sum. PTM063150 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm063150) explains what transfers will cause the individual to lose their right to a stand-alone lump sum.

Amount of stand-alone lump sum

The maximum amount of a stand alone lump that can be paid on or after 6 April 2023 is the value that could have been paid on 5 April 2023. Provided this is not exceeded:
- other money purchase arrangements can pay a stand-alone lump sum that includes the full investment return on the value of the lump sum rights as at 5 April 2006
- defined benefits or cash balance arrangements can pay a stand-alone lump sum up to the appropriate limit (PTM176330 (https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm176330) explains what the appropriate limit is).
For a stand-alone lump sum paid under circumstances A (article 25B(2)) and B (article 25B(3)), the individual’s lump sum allowance and lump sum and death benefit allowance will be reduced by the tax-free part of that lump sum. Any excess over the permitted maximum can be paid as a stand-alone lump sum, but the excess will be taxed as pension income.

For a stand-alone lump sum paid under circumstance C (article 25B(4)), the individual’s lump sum and death benefit allowance will be reduced by the tax-free part of that lump sum. However, the individual’s LSA will be reduced by 25% of the lump sum. Any excess over the permitted maximum can be paid as a stand-alone lump sum, but the excess will be taxed as pension income.