Primary Protection and pre A-Day cash rights of over ￡375,000

I was recently asked a question concerning how the new Lump Sum Allowance (LSA) / Lump Sum and Death Benefit Allowance (LSDBA) work for members with Primary Protection and pre A-Day cash rights of over ￡375,000.

My enquirer had seen conflicting information from various sources as to whether or not such members could apply for a Transitional Tax-Free Amount Certificate (TTFAC) (see my earlier article on these Certificates here) and on exactly what the member’s LSA / LSDBA is.

For this article, then, I will try to clarify the position for such members.

Can the member apply for a TTFAC?

Provided the member meets all of the usual conditions to be able to apply for a TTFAC, the answer here is yes.

The conditions that must be met for a member to apply for a TTFAC are detailed in Paragraph 127 of Schedule 9 of the Finance Act 2024 and these do not preclude a member with Primary Protection and pre A-Day cash of over ￡375,000 from applying for a TTFAC. (Note, however, that these do not actually include the key requirement that the member must have had a BCE under a registered pension scheme between 6 April 2006 and 5 April 2024 – see FAQ 57 here.)

In addition, the PTM does not suggest that a member with Primary Protection and pre A-Day cash of over ￡375,000 cannot apply for a TTFAC.

What is the member’s LSA / LSDBA?

For a member with Primary Protection, their LSA is ￡375,000 and their LSDBA is ￡1,800,000. This arises under Paragraph 7 (1) – (2) of Schedule 36 of the Finance Act 2004.

In addition, however, for Relevant BCEs other than an entitlement to a PCLS or a UFPLS, a ‘LSDBA enhancement factor’ applies, which is calculated as:

￡1,800,000 + (￡1,800,000 X F),

where F is the Primary Protection factor.

Where the member has Primary Protection and pre A-Day cash rights of over ￡375,000, this does not change what their LSA is. What it does do, however, is to change their "permitted maximum" for the purposes of Paragraph 2 of Schedule 29 of the Finance Act 2004.

The “permitted maximum” here is the maximum PCLS that the member can take on a Relevant BCE. The amended “permitted maximum” here is calculated using a somewhat complicated formula, however this can be boiled down to:

• Cash entitlement at 5 April 2006 X 1.2;

minus

• The aggregate of all previous PCLS’s the member has taken, multiplied by ￡1,800,000 / C, ?where ?C is, if the member became entitled to the PCLS before 6 April 2012, the standard Lifetime Allowance at the time entitlement arose, otherwise ￡1,800,000. (So, if the member became entitled to the PCLS on or after 6 April 2012, no adjustment is required.) ?

As such, if the member has not previously taken any PCLS, the result (the member’s special “permitted maximum”) is simply their cash entitlement at 5 April 2006 X 1.2.

This special “permitted maximum” calculation is explained in the PTM, which includes some worked examples.

In summary, where a member with Primary Protection does not have a TTFAC, their available LSA / LSDBA will generally be their ‘full’ LSA / LSDBA (see above) as adjusted using the standard transitional calculation (but note the special provision relating to the LSA in sub-paragraph (3A) of Paragraph 125 of Schedule 9 of the Finance Act 2024 for members with Primary Protection but no protected cash entitlement, noting that this provision is replicated for the purposes of the LSDBA in sub-paragraph (3A) of Paragraph 126 of Schedule 9 of the Finance Act 2024).

Where a member with Primary Protection does have a TTFAC, their available LSA / LSDBA will be their full LSA / LSDBA minus their lump sum transitional tax free amount / lump sum and death benefit transitional tax free amount, as appropriate.

In effect the usual rules for establishing the available LSA / LSDBA (depending on whether or not a TTFAC is in force) apply here too.

For clarity the three paragraphs above consider the position at the member’s first Relevant BCE on or after 6 April 2024 – where the member has had a Relevant BCE on or after that date, the amount crystallised by that Relevant BCE would have to be factored in too.

Aries Insight?provides comprehensive and detailed guidance on the application of the LSA / LSDBA rules for members with Primary Protection, as well as insight into the meaning and impact of UK pensions regulation and clear guidance on the practical implications for pension providers, trustees, administrators and consultants.? If you are not already an Aries member and would like to find out more about what Aries Insight can offer you, then please drop me a mail at [email protected] or give me a call on 01536 763352.

Please note that?we are not lawyers or financial advisers.?The information above sets out our best understanding of the legislation and how it applies, but should not be taken as constituting legal or financial advice.