LSA & Protected TFC
AlexandraBerry
Member
Hi all,
I’m currently working on a case involving a new client with multiple pensions totalling around £2.5m. One of these pensions is valued at approximately £190k and benefits from around 33% protected tax-free cash.
My understanding was that, regardless of any protected tax-free cash, the client would still be limited to the standard LSA. However, after double-checking with a technical team, they suggested that the client could first use their LSA across their other pensions and then crystallise the protected tax-free cash scheme last. On that basis, the client would effectively receive £265,275 plus an additional £62,700 (33% of £190,000) as tax-free cash.
That feels almost too good to be true, so I wanted to check with others to see if this is the case.
Any help appreciated!
Comments
I think if the pension with protection accepts transfers in, you can in fact transfer in all but £1.073m of the other pensions to that one and then take the standard LSA from the £1.073m and the balance from the rest.
The maximum LSA that can be paid from protected and non-protected sources is limited to the LSDBA. And the order is critical - you MUST do the protected scheme last.
Based on your rough numbers:
£268,275 standard PCLS, leaving £1.427m in the protected scheme. Existing PCLS is c33% of the £190k i.e. £62,700. Then 25% of what you transfer in i.e. £1.237 x 25% = £309,250.
Total tax free cash potentially ~£640k
Obviously all the stars need to align for this to work.
They key legislative points are:
1. you do not require LSA to pay a SSPTFC payment all you need is LSDBA.
2. amount is tax free up to available LSDBA then marginal tax thereafter
3. 25% of the amount crystallised in the protected scheme is deducted from the LSA
That why order is important as @benjaminfabi has pointed out above. If you took the protected scheme first you'd use up LSA unnecessarily.