Number |
Protection |
Applicable Amount* |
Lump Sum Allowance (LSA) |
Lump Sum and Death Benefit Allowance (LSDBA) |
|---|---|---|---|---|
| 1 | None | 25% of amount crystallising |
£268,275 | £1,073,100 |
| 2 | Primary (protected cash) | The amount of TFC on the certificate multiplied by 1.2 Less In the case of PCLS where entitlement arose before 6 April 2012 the amount paid revalued by 1.8 / the standard lifetime allowance when paid. Less In the case of PCLS where entitlement rose after 5 April 2012, the amount paid. |
||
| 3 | Primary (no protected cash) | 25% of amount crystallising |
£375,000 multiplied by the primary protection factor (this is more than the 23/24 level so subject to change) | £1,800,000 |
| 4 | Enhanced (protected cash) | Certificate % x amount crystallising | Amount of PCLS payable on 5 April 2023 | The amount of uncrystallised funds held at 5 April 24 |
| 5 | Enhanced (no protected cash) | 25% of amount of crystallising (as is) |
Amount of PCLS payable on 5 April 2023 (so a maximum of £375,000) | The amount of uncrystallised rights held at 5 April 24 |
| 6 | Fixed 2012 | 25% of amount of crystallising (as is) |
£450,000 | £1,800,000 |
| 7 | Fixed 2014 | 25% of amount of crystallising (as is) |
£375,000 | £1,500,000 |
| 8 | Fixed 2016 | 25% of amount of crystallising (as is) |
£312,500 | £1,250,000 |
| 9 | Individual 2014 | 25% of amount of crystallising (as is) |
25% of relevant amount | £1.25m to £1.5m |
| 10 | Individual 2016 | 25% of amount of crystallising (as is) |
25% of relevant amount | £1m to £1.25m |
| 11 | Scheme Specific | The lump sum payable is calculated by multiplying the A day cash by 1.2 and then adding ¼ of the A day fund value x 0.7154 subtracted from the current fund value | ||
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Technical
Pension Commencement Lump Sums (PCLS)
10 min read 26 Sep 23
The content of this page is based on our understanding of the draft legislation and other related HMRC announcements as at 20th September 2023.
PCLS calculations are being amended under the new pension regime from 6 April 2024.
Currently, PCLS is a “2 limbed” approach, being the lower of:
- 25% of the amount crystallising, the “applicable amount”, and,
- 25% of the available Lifetime Allowance, the “available portion”.
From 6 April 2024 it is a “3 limbed” approach, being the lower of:
- the available Lump Sum Allowance, and
- the available Lump Sum and Death Benefit Allowance
- the applicable amount
The applicable amount is calculated in broadly the same way as it is prior to 6 April 2024 with some amendments caused by the abolition of the lifetime allowance. The ”3 limb” approach does not apply in scenarios 2 and 11 in the table below.
The usage of Lump Sum Allowance and Lump Sum and Death Benefits Allowance is covered above.
The table below shows the relevant PCLS rules:
* disqualifying pension credits and amounts from crystallised funds do not provide PCLS as per current rules
Scheme Specific Tax Free Cash Calculation
The formula for calculating SSPTFC used to be based on changes in the lifetime allowance between 6 April 2006 and when benefits were taken.
Old formula
(VULSR x ULA / FSLA) + ALSA
VULSR is the value of the individual's uncrystallised lump sum rights under the scheme on 5 April 2006.
ULA is the greater of £1.8 million and the standard lifetime allowance when benefit entitlement arises.
FSLA = £1.5 million.
ALSA is the amount found by the formula:
[LS + {AC - (VUR X CSLA / FSLA)}] / 4
CSLA is the current standard lifetime allowance, or £1.8 million where this is greater, and the individual has fixed protection 2012, this is £1.5 million for fixed protection 2014 and £1.25m for fixed protection 2016. For those with Individual Protection 2014/16, the figure to use for CSLA is the member’s own protected lifetime allowance.
LS is the amount of pension commencement lump sum actually paid.
AC is the amount actually crystallised by becoming entitled to a pension in connection with which the pension commencement lump sum is paid, or the amount of the trivial lump sum paid (more information on trivial lump sums and protection can be found here). Where a scheme pension is paid from a money purchase arrangement, AC will be the scheme pension purchase price, i.e. the value of the sums and assets made available to provide the scheme pension. Where the member becomes entitled to the connected pension after reaching 75, even though there is no actual benefit crystallisation event, AC is the amount that would have crystallised had there been such an event.
VUR is the value of the individual's uncrystallised rights under the scheme on 5 April 2006.
If the formula gives a negative result, ALSA will be nil and no further additional lump sum can be paid.
The difference in CSLA depending on the existence or not of LTA protection means there’s a difference in amounts of TFC payable. Where protection exists and it is higher than £1,073,100 then the PCLS payable is lower than for those with no protection.
New formula
Under the new rules the mentions of LTA in the formula are replaced with numeric amounts.
(VULSR x ULA / FSLA) is now VULSR x 1.2 (1.8m/1.5m)
ALSA is also amended
[LS + {AC - (VUR X CSLA / FSLA)}] / 4 is now [LS + {AC - (VUR X 0.7154)}] (0.7154 is 1,073,100 / 1,500,000).
The overall impact is SSPTFC for everyone will be the same regardless of protections held. Those with no Protection will have the same amount but all those with protections would see their SSPTFC increase.
Worked Example
The table below shows the PCLS available for someone with different protection levels before and after the LTA abolition:
VULSR - £100,000, VUR - £200,000, Current amount crystallising - £400,000
Protection |
LTA |
2023/24 |
2024/25 |
|---|---|---|---|
| None | £1,073,100 | £184,230 | £184,230 |
| Enhanced (no protected %) | £1,500,000 | £170,000 | £184,230 |
| Fixed 2012 | £1,800,000 | £160,000 | £184,230 |
| Fixed 2014 | £1,500,000 | £170,000 | £184,230 |
| Fixed 2016 | £1,250,000 | £178,333 | £184,230 |
| Individual 2014 | £1,500,000 | £170,000 | £184,230 |
| Individual 2014 & 2016 | £1,250,000 | £178,333 | £184,230 |
| Primary (no protected Amount) | £1,500,000 | £170,000 | £184,230 |
It has always seemed anomalous that those with protection had less SSPTFC than those without protection. It is unclear whether this change is intentional or whether these increases to the tax free amount will be amended as the legislation goes through the parliamentary process.
Further clarity required
The draft legislation has created a situation where some people will be entitled to more and some less PCLS than they would have been able to take prior to the abolition of the LTA. This is mainly down to the unknown treatment of Income BCEs taking place between April 2006 and April 2024, where we await further details of the transitional provisions. Some anomalies are also apparently the unintended consequences of the initial drafting of the new rules. Those with tax free cash protected through Enhanced Protection or those entitled to Standalone Lump Sums may get less PCLS going forward which we believe to be intended but we do not believe there is an intention for others to get more, or less.
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