Standalone Lump Sums (SALS)

What is a Standalone Lump Sum? 

A SALS is a special type of lump sum payable for certain members who had benefits in schemes at 5 April 2006.

If the total lump sum rights at 5 April 2006 were equal to the total pension rights, that is 100% tax free cash, then a SALS may be payable.

It is not a pension commencement lump sum as there’s no requirement for a SALS to be linked to an arising entitlement to pension.

Prior to 6th April 2023 there was no limit to the amount of a SALS that could be paid.  As a result of the abolition of the Lifetime Allowance announced in Spring Budget 2023 a limit was placed on the tax free amount payable. 

What are the requirements for a Standalone Lump Sum to be paid?

To pay a standalone lump sum:

• the member must have reached the normal minimum pension age (or any earlier protected pension age or satisfy the conditions for an ill-health pension)

• all the benefits under the pension scheme must be paid out at the same time

• there has been no benefit accrual under the scheme

• the lump sum is 100% in all the member's arrangements under the scheme or schemes of the same employment (it can’t apply to just one). 

• they must not have Enhanced or Primary Protection with protection of lump sum rights (TFC over £375,000 at 5th April 2006)

Whilst technically not a Standalone Lump Sum, as 100% of the fund was not available on 5th April 2006, the full amount of an arrangement could be paid out tax free where the protected cash level on the Primary Protection was large enough to facilitate this (and the scheme agreed).

What is the tax free limit?

The permitted maximum tax free amount is different depending on whether there is valid Enhanced or Primary Protection.  

No protection and Primary Protection or Enhanced Protection without any lump sum protection

The tax free limit is the lower of:

• the amount that could have been paid on 5th April 2023 without liability to income tax, and
• the members available lump sum and death benefit allowance

Enhanced Protection where certificate shows 100%

The tax free limit is the lower of:

• the amount that could have been paid on 5th April 2023 without liability to income tax, and
• the aggregate of the amounts of any standalone lump sums and pension commencement lump sums previously paid to the individual under that arrangement after that date

Primary Protection with lump sum protection

The tax free limit is the lowest of:

• the amount that could have been paid on 5th April 2023 without liability to income tax, and
• the members available lump sum and death benefit allowance, and
• the SALS "maximum"

The SALS maximum is the protected amount of lump sum rights shown on the certificate minus the tax free amounts of SALS and PCLS paid since 5th April 2006.

Amounts paid are revalued by increasing by 20% any amounts paid after 5th April 2012. Amounts paid prior to this date are revalued by multiplying by £1.8m and dividing by the standard lifetime allowance when the amount was paid. 

There are worked examples in HMRC guidance at PTM06311. 

How do Standalone Lump Sums use up LSA & LSDBA?

Where Primary or Enhanced Protection applies 100% of the tax free amount paid is deducted form both the LSA and the LSDBA.

In any other case the LSA is reduced by 25% of the amount of benefits taken and the LSDBA by 100% of the tax free amount paid.

Frequently Asked Questions

Does a SALS trigger the Money Purchase Annual Allowance?

Generally no. However, a  SALS can also be paid where a member has Primary Protection with protected lump sum rights and this payment would trigger the Money Purchase Annual Allowance.

Can you lose entitlement to a SALS?

Yes:

• where a transfer is made into a scheme with a SALS entitlement

• where a transfer out is made that doesn't meet the block transfer rules.

• if relevant benefit accrual occurs in the scheme where the SALS entitlement exists