Section 7 - PCLS and UFPLS Flashcards
The 5 conditions for PCLS
• Entitlement linked to ‘relevant pension’, i.e., scheme pension, lifetime annuity, drawdown
• Have some LSA left
• Paid between 6 months before and 12 months after entitlement to relevant pension
• Paid at normal minimum pension age / earlier if ill-health/protected pension age
• Not be an excluded lump sum (bridging pension set up to increase PCLS)
Maximum allowable PCLS is
normally lower of:
• 25% of capital value of benefits coming into payment, and
• 25% of the available LSA
How is PCLS taxed
• Free of tax
• But if total value of lump sums taken under the standard calculation is above the LSA - excess taxed under PAYE
How is PCLS effected by scheme members with enhanced/primary protection
Scheme members with enhanced/primary protection and tax-free cash of no more than £375,000 on A-Day will have maximum PCLS based on LTA of £1.5m/i.e., not affected by reduction in standard LTA or subsequent abolition
How are the benefits of PCLS taken after A-day
Benefits taken after A-day, value of previously drawn benefits are revalued with standard lifetime allowance (£1.8m) to preserve 25% of LTA ceiling
What is the maximum PCSL available to a DB scheme member
For DB scheme member, maximum PCLS is 25% of total pension rights, including lump sum (subject to LSA)
Maximum PCLS = [PCLS + (20 x residual pension)] x 25%
How do you calculate the residual pension amount for PCLS on a DB scheme
Residual pension = pre-commutation pension - (PCLS /C),
where C is the
commutation factor
How do you calculate the amount of tax-free cash available for PCLS on a DB scheme
Tax-free cash = pre-commutation pension x C / [1 + (0.15 x C)]
Where C is the commutation factor
What are the defining features of UFPLS
Uncrystallised Funds Pension Lump Sum
• Only from uncrystallised DC funds
• Can take UFPLS without designating funds to drawdown or buying annuity if over 55
• Is a trigger event for MPAA
• No PCLS with UFPLS but 25% usually paid tax free with rest taxed under PAYE
• Subject to remaining lump sum allowance
• If insufficient LSA remaining, then only the remaining LSA can be paid tax free
• The balance will be taxed
• No longer a distinction between pre- and post-75 UFPLS
What are the restrictions to UFPLS
• Cannot take from drawdown contract/crystallised funds
• Not possible to take from uncrystallised funds where member has:
- Primary protection lump sum rights of more than £375,000
- Enhanced protection lump sum rights of more than £375,000
- LTA enhancement factor and lump sum allowance less than 25% of UFPLS
- This is to prevent UFPLS giving greater amount tax free than PCLS would
• Those with protected age of under 55 can take UFPLS but only if they are taking
ALL pension benefits - cannot use part to give UFPLS and leave rest uncrystallised
