The following Pensions guidance note Produced in partnership with Barnett Waddingham and Rowan Harris of Quattro Pensions provides comprehensive and up to date legal information covering:
When a member of a pension scheme becomes entitled to receive their scheme benefits, they can usually take part as a tax-free lump sum. HMRC calls this a ‘pension commencement lump sum’ (PCLS). Taking a lump sum is usually at the option of the member who will need to elect the amount they take, but the scheme rules should be checked for procedural or other requirements. Under current legislation a PCLS is tax free, and so is usually an attractive option for members.
Given the tax free status, HMRC’s conditions for a lump sum to qualify as a PCLS are strict.
This Practice Note first considers HMRC’s general conditions and then special conditions applying in particular cases.
In a defined contribution (DC) scheme, a proportion of the member’s pension pot is simply paid to the member as cash.
The situation is more complex for a defined benefit (DB) scheme, where a value must also be placed on the amount of pension that is given up for the lump sum. It is very unusual for scheme rules to specify this value and instead the rules will specify who has the power to set the value.
A lump sum is a PCLS (and therefore tax free under current legislation) if the following conditions are satisfied:
age condition—the member has reached
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